Federal Agency is Set to File Suit Against Major Banks for MBS
The Federal Housing Finance Agency (FHFC) is set to file suit against the nation’s major banks, including Bank of America, JP Morgan Chase, Goldman Sachs and Deutsche Bank, according to Reuters and other sources. The FHFC is the watchdog of the mortgage markets, including Fannie Mae and Freddie Mac, and is it claiming that the banks misrepresented the quality of the mortgages that were securitized and sold to investors leading up to the financial debacle in the fall of 2008, following the burst of the housing bubble.
The lawsuit comes on the heels of subpoenas served on the banks seeking documents and information regarding the mortgages that were packaged and peddled to investors. According to the article, the federal agency will attempt to show that the banks neglected to determine borrowers’ incomes, inflated the income or in some other way falsified the borrowers’ incomes. It was during this time that subprime lending was most prevalent, with mortgage brokers failing to perform their due diligence and allowing borrowers to take out larger mortgages than they were financially equipped to handle. Fannie Mae and Freddie Mac filed a lawsuit against UBS previously asking for $900 million.