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On Monday, the Federal Housing Finance Agency said that, as the conservator of Freddie Mac and Fannie Mae, it is subpoenaing loan-level underwriting and performance data from 64 security issuers and other entities.
July 12
WASHINGTON — The federal agency that oversees Fannie Mae and Freddie Mac filed lawsuits Friday against 17 financial institutions, including some of the largest American banks, alleging that they made misrepresentations when they sold private-label mortgage-backed securities to Fannie and Freddie.
The Federal Housing Finance Agency sued top U.S. financial institutions including Ally Financial Inc., Bank of America Corp., Citigroup Inc., First Horizon National Corp. General Electric Co., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley. The agency also filed lawsuits against Countrywide Financial Corp. and Merrill Lynch/First Franklin Financial Corp., which were both purchased by B of A in 2008.
The foreign institutions that were sued include Barclays, Credit Suisse, Deutsche Bank, HSBC, Nomura, Royal Bank of Scotland, and Societe Generale. In some cases, the FHFA's lawsuits named the U.S. affiliates of those institutions.
Wells Fargo & Co. was notably absent from the list of banks sued.
The FHFA alleges in its lawsuits that loans in the $200 billion of private-label securities that the 17 financial institutions sold to Fannie and Freddie had riskier characteristics than the descriptions in the marketing materials disclosed. The sales generally occurred between 2005 and early 2008.
Bank of America's exposure to the suits is particularly large. Though Bank of America itself issued only $6 billion of the securities on which the FHFA has filed claims, its Countrywide and Merrill Lynch acquisitions have multiplied its exposure. In total, they sold Fannie Mae and Freddie Mac more than $57 billion in securities.
That compares, for example, with $33 billion in total claims against JPMorgan Chase & Co, a figure which includes the company's exposure to both WaMu and Bear Stearns.
Deutsche Bank issued $14.2 billion in securities on which the agency filed claims. The equivalent figure for Credit Suisse is $14.1 billion. The FHFA is seeking billions of dollars in damages from both of those European banks.
Certain other banks have less exposure. In the suit against Goldman, the FHFA alleges that Fannie and Freddie bought $11.1 billion in securitizations, and that the damages are in the hundreds of millions of dollars. In the case against Citigroup, the agency alleges that in connection with $3.5 billion in securitizations, damages are in the hundreds of millions of dollars.
"Actual recoveries would be determined on filings by the parties, evidence and judicial findings," an FHFA spokesperson said in an email. "At this time it would be premature and potentially misleading to estimate what recoveries would be."
The federal agency filed its lawsuits nearly three years after it took Fannie and Freddie into government conservatorship. It decided to sue the banks now because a three-year statute of limitations expires next week, according to a report in The New York Times.
The lawsuits are seeking damages and civil penalties under the Securities Act of 1933, in addition to compensatory damages for negligent misrepresentation, according an FHFA press release.
The agency also stated that it has had discussions regarding the allegations with several of the firms it is suing, and that such discussions will continue if they are constructive.
