US regulator sues major banks over subprime bonds

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.

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