US Sues 17 Major Banks Over Risky Mortgages

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Johnny Oxygen
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US Sues 17 Major Banks Over Risky Mortgages

US Sues 17 Major Banks Over Risky Mortgages

http://www.cnbc.com/id/44377694

A U.S. regulator sued a number of major banks Friday over losses on more than $41 billion in subprime mortgage bonds, which may hamper a broader government mortgage settlement with banks.

The lawsuits by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, came as a surprise to the market and weighed on bank shares. The lawsuits could add billions of dollars to the banks' potential costs at perhaps the worst possible time for the industry.

Here is a response from The 5 Minute Forecast:

http://5minforecast.agorafinancial.com/things-that-make-your-head-explode/

Seriously.

If you’ve been keeping score at home, you already know why this is a joke. The standards by which subprime mortgages were originated, then guaranteed, then packaged and foisted on the investment markets were originally established by Fannie Mae and Freddie Mac.

The pertinent facts were relayed in this video. (Warning: When we linked to this video in 2008, our inbox was flooded with partisan rants. If after watching you have an insatiable need to cast blame, please target a buddy or spouse who may actually care enough about the two-party system to debate you.)

“While I believe that FHFA is acting responsibly in its role as conservator,” one-time Fannie flunky Tim Rood (now a partner at the Collingwood Group) told The New York Times this morning, “I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again.”

Hmmmnn… let’s see if we can get this: A bankrupt government is suing on behalf of two bankrupt quasi-government firms… hoping to recover money from bankrupt banks that were already bailed out once by the aforesaid bankrupt government… and as a consequence may yet need to be bailed out again.

If the suit is going to drag Congress into another political quagmire, why, you might be tempted to ask, do it at all… and why now?

Well, because the statute of limitations expires next Wednesday.

The FHFA will file suit — if not today, then first thing next week. Fannie and Freddie’s losses on these deals are estimated to be $30 billion.

 

 

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Mr. Fri
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Quote: Hmmmnn…
Quote:

Hmmmnn… let’s see if we can get this: A bankrupt government is suing on behalf of two bankrupt quasi-government firms… hoping to recover money from bankrupt banks that were already bailed out once by the aforesaid bankrupt government… and as a consequence may yet need to be bailed out again.

Could this be a way for the government to take over the banks?  I'm not trying to start any rumors, just wondering if state run banks could be the outcome.

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sundarb
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limit losses to banks?

http://www.zerohedge.com/news/fhfa-lawsuit-against-banks-just-subversive-res-judicata-bail-out-banks

 

May be it is some kind of scheme to limit the losses for the banks that face tons of foreclosure litigations.

Some excellent comments from Yahoo finance article:

so they are suing the same people they bailed out?maybe they should have looked into this before they just handed over the money.

Let me see if I have this straight...The politicians, in order to buy votes, strong arm the banks to approve risky mortgages. Fanny and Freddie buy them. The bubble bursts and the banks are bailed out with taxpayer money. Now the same government that pushed for the loans is suing the banks for doing what the feds wanted them to do in the first place? What's next, another bank bailout?

The Federal Government should sue themselves by causing all of this mess. Congress, with Senator Phil Grahm and Bill Clinton, repealed the Glass-Steagall Act of 1933, in 1999 which separated banking and brokering. There was a good reason for his act to exist following the Crash of 1929. The banks lobbied congress starting the 1980s. After 1999, the mortgage lending mania over 9 years created a housing bubble that burst in 2008.

 

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Johnny Oxygen
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Interesting Post

Interesting opinion post from zerohedge:

http://www.zerohedge.com/news/fhfa-lawsuit-against-banks-just-subversive...

That Zero Hedge has a jaded outlook on the world is pretty much clear by now. But even our cynicism is amateur hour compared to that exhibited by some of our readers. Below we present one outlook by reader Joseph, on how the FHFA "lawsuit" against the banks, a development that as we noted before stinks to high heaven from a purely (lack of ) logical standpoint, could be nothing less than Res Judicata in sheep's clothing, whose purpose is simply to facilitate the case for QE (banks tumble), then settlement of the settlement (banks soar), but not before the crony communists have built up a solid equity position in the names, QE3 is firmly in place, and Obama is seen as the crusader against the hated banks. Is it possible? Who knows. We will find out as the affidavits start trickling in.

Some brainstorming from Joseph:

 
 

"Issue preclusion" in first suit "fully and fairly litigated" is res judicata in all subsequent cases even if parties are different.

 

1. Initiate Fed Fannie/Freddie suit and stay all other litigation while bank panic ensues.
2. Drag down market and start QE3 while bank directors shovel money into Obama's campaign.
3. Bernanke buys the shitty MBS and worthless bank stock "to save economy," stocks up, bonuses saved, election won!
4. Throw the suit and lose (on a technicality!) creating res judicata so banks thereafter can win based on res judicata in all the other state and federal cases
5. Banks walk from all litigation winners so screw the attorney generals settlement and the New York state BOA litigation.
6. Taxpayers pick up tab TWICE, once for the original fraud MBS sold to F/F and once for QE3 to "save the economy."
7. Obama is a lawyer and this is basic "con" law.
8. Occam's razor.  Wells Fargo, the one not sued, is the one going down, IMHO.

 

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dshields
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I Don't Know

I do not know what it means.  Truly crazy stuff happens every single week now - sometimes every day.  This is just the next chapter in the book "Getting Thrown To The Crazy".  I should write that book.  The entire world has gone crazy.  You can buy Black Swans by the case and yet the entire system keep staggering along.  None of it makes any sense and now this.  There was clearly immoral if not illegal activity by the banks and others leading up to the credit/debt crisis.  They let all the bubbles pop except for the credit/debt bubble.  Even though Lehman was Fed Res share holder they let them go down.  To this day I am not sure what happened there.  So let's see - the banks and politicians screw up big time and throw us under the bus.  We (the us) bail them out.  Now we sue them for doing the very same stuff that forced us to bail them out.  It will be interesting to see how it all comes down.  Just when I thought it could not get any crazier we have this.  So let's say the Fed Gov has a decent case and wins.  What happens then ?  The judgements break the banks and we bail them out again ?

 

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SteveW
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Curious

What I find most curious is that a government agency is bringing a civil suit, the basis of which for the plaintiff is the allegation of fraud, yet there is still apparently no criminal case being pursued. Curious and curioser, we're really down the rabbit hole now.

Johnny Oxygen's picture
Johnny Oxygen
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You can buy Black Swans by

You can buy Black Swans by the case and yet the entire system keep staggering along.

This amazes me also. Three years and it just keeps chugging along with 22% unemployment. really really hard to phathom.

It will be interesting to see how it all comes down. It will be interesting to see how it all comes down.

If Fanny and Freddy are found quilty then that means the government hold responsibily since the own them. Nope it will get kicked around in court, then a small fine but no 'guilty' verdict.

What I find most curious is that a government agency is bringing a civil suit, the basis of which for the plaintiff is the allegation of fraud, yet there is still apparently no criminal case being pursued. Curious and curioser, we're really down the rabbit hole now.

When was the last time in the past three years you saw anyone go to jail? Only fines are charged and quilt doesn't have to be admitted. Thats how it works now. Truly bizzare.

 

 

dshields's picture
dshields
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Posts: 599
politicians

Politicians caused it all.  In an effort to eliminate "red lining", the practice of not granting  loans to people of certain areas as it was believed their credit worthiness was uncertain, the Fed Gov enacted a series of measures to literally force banks to give out loans to many people who should not have loans.  People did not want to purchase these loans as they were high risk so they Fed Gov forced Fannie and Freddie to start buying them.  That was the start of it.  Then it all snow balled when Wall Street moved in and created so called structured products with the poor loans.  Then Wall Street itself started pushing the creation of these loans as it became apparent that they could actually sell the structured products made from the loans.  It was clearly a crazy high risk bubble.  `The bubble pops and the Fed Gov/Fed Res bails out the too big to fail everything everywhere.  Now the Fed Gov is going to sue the very people they bailed out.  Once again with our money.  If they get the judgments they are looking for...

·                                Ally Financial (ex-GMAC), $6 billion 

·                                Bank of America Corp., $6 billion 

·                                Barclays Bank, $4.9 billion 

·                                Citigroup, $3.5 billion 

·                                Countrywide, $26.6 billion 

·                                Credit Suisse Holdings USA, $14.1 billion 

·                                Deutsche Bank, $14.2 billion 

·                                First Horizon National, $883 million 

·                                General Electric, $549 million  

·                                Goldman Sachs, $11.1 billion  

·                                HSBC North America, $6.2 billion  

·                                J.P. Morgan Chase, $33 billion 

·                                Merrill Lynch/First Franklin Financial, $24.853 billion  

·                                Morgan Stanley, $10.58 billion  

·                                Nomura Holding America Inc., $2 billion  

·                                Royal Bank of Scotland Group, $30.4 billion  

·                                Societe Generale, $1.3 billion

...it will be a further financial burden on the banks we just paid to save.  To get the money they will have to raise interest rates on credit cards and loans, more fees on everything you can think of, and a lot more.  I assume the winnings of such legal actions would go to re-capitalize fannie and freddie but I have yet to hear anyone in authority actually say that.

It is all pretty strange.

 

Johnny Oxygen's picture
Johnny Oxygen
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US Banks Offered Deal Over 'Robosigning' Lawsuits

http://www.cnbc.com/id/44403367

Notice, once again, that no one is going to jail.

Big U.S. banks in talks with state prosecutors to settle claims of improper mortgage practices have been offered a deal that is proposed to limit part of their legal liability in return for a multibillion dollar payment.

The talks aim to settle allegations that banks including Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial seized the homes of delinquent borrowers and broke state laws by employing so-called “robosigners”, workers who signed off on foreclosure documents en masse without reviewing the paperwork.

...However, the banks – some of whose share prices have been battered by concern about their exposure to mortgage-related litigation – are pressing for immunity from a raft of alleged civil violations and have called the latest proposal a “non-starter”.

...Though the counteroffer attempts to release the banks from liability with respect to home repossessions, and explicitly states that the release does not include securitization claims, the language is broad enough in that it could prevent state officials from bringing securitization claims in the future should they sign up to the agreement.

At the heart of securitization claims, which involve missteps in how home mortgages were bundled into bonds, are allegations that the banks did not properly maintain and transfer documents from one step in the complicated chain to the next.

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