WASHINGTON/NEW YORK, (Reuters) – A U.S. regulator sued 17 large banks and financial institutions yesterday over losses on about $200 billion of subprime bonds, which may hamper a broader government settlement of the mortgage mess left over from the housing crisis.
The lawsuits by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, surprised investors, dragging down bank shares and could add billions of dollars of legal costs at perhaps the worst possible time for the industry.
Yesterday’s lawsuits reflects how different parties, including investors, banks and different government groups are fighting over who should bear losses from a housing crisis that in 2008 drove the economy into its worst recession in decades.
The FHFA accused Bank of America Corp and its Countrywide and Merrill Lynch units, Barclays Plc, Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co, Royal Bank of Scotland Group Plc and others of misrepresenting the checks they had done on mortgages before bundling them into securities.
According to the lawsuits, the securities should have never been sold because the underlying mortgages did not meet investors’ criteria. As more borrowers fell behind or went into foreclosure, the securities’ value fell, causing losses.
Nearly all the banks that were sued declined to comment or were not immediately available for comment. Others called the charges unfounded.
“Fannie Mae and Freddie Mac are the epitome of a sophisticated investor, having issued trillions of dollars of mortgage-backed securities and purchased hundreds of billions of dollars more,” said Mayura Hooper, a spokeswoman for defendant Deutsche Bank AG, in a statement.