US 'to sue a dozen banks over housing bubble mortgages'

 
Goldman Sachs sign on the floor of the NYSE Goldman Sachs is expected to be one of the banks facing legal action

The US is planning to sue more than a dozen major banks for misrepresenting the quality of mortgages they sold during the housing bubble, the New York Times reports.

The Federal Housing Finance Agency will argue that the banks should have known the securities were not sound.

Bank of America, JPMorgan Chase, and Goldman Sachs are to face action, the newspaper quotes sources as saying.

The suits could be filed as early as Friday, it adds.

The Federal Housing Finance Agency - which oversees mortgage giants Fannie Mae and Freddie Mac - blames the banks for failing to perform adequate checks on the quality of mortgage securities they sold on to investors before the financial crisis in 2008.

Fannie Mae and Freddie Mac lost more than $30bn (£18.5bn), partly because of the deals, and had to be bailed out by the government.

The suits follow subpoenas the finance agency issued to banks last year, according to the newspaper.

The BBC's Marcus George in Washington says this is the latest of a number of lawsuits against financial institutions who were involved in the practice of issuing mortgage-backed securities.

However, some executives say the losses were made because of the wider economic downturn.

Others fear further litigation against banks could damage America's fragile recovery, our correspondent adds.

 

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  • rate this
    +1

    Comment number 135.

    This lawsuit will ensure banks cough up a lot of money and reduce their profitability; hence the exorbitant bonus culture. Granted that this will be a tough pill to swallow in the near term but hopefully will reduce the "sexy" nature of banking into a more mature, stable, conservative and reliable platform for credit and liquidity for "real businesses" to grow which is the real role of banking

  • rate this
    +16

    Comment number 14.

    This news could not have come at a worse time for banks.
    Along with Mr. Darling's assertions on stupid incompetent and ungrateful bankers it only goes to endorse peoples opinion on the necessity to reform banks and separate the retail from the casino element.
    The strange part is that this country is not pursuing bankers through the courts in a similar manner to the Americans. Why is this so. ?

  • rate this
    +54

    Comment number 12.

    It's true that a financial penalty on a bank will only be paid for by customers and taxpayers and pension funds - that's us x 3. Would be better if they sued the individuals running the banks - that way it hits the people who made the decisions, even the adverse publicity would be great to see. We need strong institutions led with integrity.

  • rate this
    +39

    Comment number 8.

    This is long overdue but will they be going after the credit rating companies who got it so spectacularly wrong as well?

  • rate this
    -2

    Comment number 5.

    Suing the big banks, who you need to be strong in order to lend and drive the economy, does not seem to be a smart economic decision. Smart politics maybe (and Barack has an election to think about), but not good economics.

    There is also a problem of who pays. Who did wrong? Individuals, and corporations. Who pays for it? Just the corporation (i.e. the shareholders.)

 

Comments 5 of 6

 

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