U.S. to sue big banks over mortgages

September 2, 2011

The agency that oversees U.S. mortgage markets is preparing to file suit against more than a dozen big banks, accusing them of misrepresenting the quality of mortgages they packaged and sold during the housing bubble, the New York Times reported late Thursday.

The Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, is expected to file suit against Bank of America, J.P. Morgan Chase, Goldman Sachs and Deutsche Bank, among others, the Times reported, citing three unidentified individuals briefed on the matter.

The suits stem from subpoenas the agency issued to banks last year. The suits could be filed as early as Friday, the Times said; if not filed Friday, the paper said, the action would come Tuesday.

The government will argue the banks, which pooled the mortgages and sold them as securities to investors, failed to perform due diligence required under securities law and missed evidence that borrowers’ incomes were falsified or inflated, the Times reported. Fannie and Freddie lost more than $30 billion, due partly to their purchases of mortgage-backed securities, when the housing bubble burst in 2008.

A Federal Housing Finance Agency spokesman was not immediately available for comment. The Times said Bank of America, J.P. Morgan and Goldman Sachs declined comment. A Deutsche Bank spokesman told the Times, “We can’t comment on a suit that we haven’t seen and hasn’t been filed yet.

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