Federal Agency Set to Sue Major Banks Today or Tuesday

[Retire Soon]

The Federal Housing Finance Agency will be filing lawsuits against Bank of America, JP Morgan Chase, Goldman Sachs, and other banks either today or Tuesday for misrepresenting the quality of mortgage securities during the housing bubble. I have to tell you, this is absolutely the best news I have heard this year. It's about time Wall Street pays for the permanent damage that they've done to our economy.

U.S. said ready to sue big banks over mortgages - MarketWatch

 

[FinanceDude]

Well, that ought to help CD and MM rates..........

 

[teejayevans]

The Federal Housing Finance Agency will be filing lawsuits against Bank of America, JP Morgan Chase, Goldman Sachs, and other banks either today or Tuesday for misrepresenting the quality of mortgage securities during the housing bubble. I have to tell you, this is absolutely the best news I have heard this year. It's about time Wall Street pays for the permanent damage that they've done to our economy.

And what about Fannie and Freddie?? Who are still bleeding money?

Where was FHFA when the US Govt was encouraging the sub-prime loans after the Community Reinvestment Act and Greenspan was keeping rates artificially low?

Personally instead of some lawsuit that will be settled for a few million in fines (where the banks deny any wrong doing), I think they should break them up...
TJ

 

[chinaco]

I guess the feds are trying to get some of that bail out money back.

 

[harley]

It's about time Wall Street pays for the permanent damage that they've done to our economy.

This is meaningless unless somehow the individuals who were running the companies during the 1990s and 2000s were personally fined. Otherwise there's no incentive to change anything.

And what about Fannie and Freddie?? Who are still bleeding money?

Where was FHFA when the US Govt was encouraging the sub-prime loans after the Community Reinvestment Act and Greenspan was keeping rates artificially low?

Personally instead of some lawsuit that will be settled for a few million in fines (where the banks deny any wrong doing), I think they should break them up...
TJ

+1 on all of the above.

I guess the feds are trying to get some of that bail out money back.

No need, they can just print more. They're just trying to set the stage for an easy settlement in the foreclosure situation by saying "see they're going to be punished". But nothing meaningful will happen.

 

[Gone4Good]

And what about Fannie and Freddie?? Who are still bleeding money?

The lawsuit is on behalf of Fannie and Freddie who bought these securities.

 

[Texas Proud]

I just wonder if they are going to try and put all the loans in the same basket...

IOW, there WERE loans that were made that were good at the time.... but the people got laid off, or their house value went down by 50% and they decided to walk from the debt.. to me, this is not a loan that should be pursued... at the time the loan was made, all things were hunky-dory....


OTOH, there were a lot of liar loans and other sorts of fraud that should be pursued... and like a few other comments I would much rather see some of the people who did these things be charged with a crime, or at least have to pay into any settlement...


Also, what will happen to the weak such as BofA Are we ready to take them over and sell off the carcass The cost of doing that could easily overwhelm any gains from the other banks...

 

[Retire Soon]

There is danger of "moral hazard" when large corporations believes they can run huge risks with shareholders' money knowing ahead of time that the government (i.e., taxpayers) will bail them out. There needs to be accountability and consequences for these obvious misdeeds. The concept and practice of "too big too fail" does not justify
fraud.

 

[FinanceDude]

The lawsuit is on behalf of Fannie and Freddie who bought these securities.

Yeah, that's like the foxes guarding the hen house..........

 

[youbet]

I just wonder if they are going to try and put all the loans in the same basket...

IOW, there WERE loans that were made that were good at the time.... but the people got laid off, or their house value went down by 50% and they decided to walk from the debt.. to me, this is not a loan that should be pursued... at the time the loan was made, all things were hunky-dory....
.

That's the big question for me too.......

There are a variety of reasons, from good to lousy, that loans are being defaulted on today. No doubt, some banks were less than diligent in ferreting out borrowers who were poor risks. But, as you say, what about folks who lost a job due to the recession but were good risks before that? And folks who are walking because they took out additional loans on the house as the market continued to soar and these secondary loans pushed them over the brink? How about the loans where folks definitely able to pay are just walking anyway because the house is very upside-down?

One result of this legal action will be that banks will no longer be looked at as bad guys for not lending to those not having squeakly clean credit scores. I'm all for lenders requiring a minumum of 20% down, tough/conservative appraisals, high credit scores, significant income histories, etc., to qualify for a mortgage loan.

 

[MichaelB]

It seems pretty clear that the complaint is about fraud and misrepresentation, mortgages that were extended based on applications that were falsified, incomplete or otherwise inadequate and mostly originated by intermediaries. The problems are really with Countrywide and other mortgage providers that were sold at the housing peak.

There is the additional problem of how these mortgages were represented when they were packaged and sold as MBS.

Edit: Re-reading a bit more slowly, the complaint is about the MBS - so it is securities, not origination. There is another negotiation underway about mortgage origination and processing.

 

[clifp]

This is meaningless unless somehow the individuals who were running the companies during the 1990s and 2000s were personally fined. Otherwise there's no incentive to change anything.
.

I agree what is really needed is to go after individuals who knowingly broke the law at all levels. From the folks who lied about their income on their mortgage applications, to the brokers who encouraged them, to the loan officers who turned blind eye, to the branch managers who threaten the many whistle blowers, all the way up to CEO's like Angelo Mozilo. Although this SOB at least got hist with a 68 million dollar fine.

The benefits of suing institutions are somewhat dubious. By and large the worst offenders like BofA (mostly due to CountryWide) and CitiGroup, are in the most precarious financial situations. Trying to collect and 10s or 100s of billions of dollars judgement from BofA or Citi will probably just cause another banking crisis, which will be bailed out.

Now there are probably exceptions like Goldman which likely did some bad crap and have money. But there are also banks like Ally Banks, which is 75% owned by the Treasury, it just seems pointless for one Government owed financial institution like Fannie to sue another.

 

[youbet]

It seems pretty clear that the complaint is about fraud and misrepresentation, mortgages that were extended based on applications that were falsified, incomplete or otherwise inadequate and mostly originated by intermediaries. The problems are really with Countrywide and other mortgage providers that were sold at the housing peak.

There is the additional problem of how these mortgages were represented when they were packaged and sold as MBS.

I would certainly support prosecution of lending companies and their employees who particapated in fraud, misrepresentation, falsifications and incomplete or otherwise inadequate information. My curiosity is how they are going to slice and dice the data since simply looking at default rates wouldn't begin to work. Many of the defaults were "good" loans at the start. I'll be interested in seeing whether they simply present a few dozen or a few hundred individual examples or try to use either descriptive or inferential statistics about packages of mortgages as a basis for finding fault.

In any case, let's hope this results in the establishment of mandatory tough requirements for future loans. And uniform laws and regulations across all states providing severe penalities for fraud, misrepresentation, etc. Non-recourse loans should be eliminated.

 

[MichaelB]

I would certainly support prosecution of lending companies and individuals involved in lending who particapated in fraud, misrepresentation, falsifications and incompletge or otherwise inadequate information. My curiosity is how they are going to slice and dice the data since simply looking at default rates wouldn't begin to work. Many of the defaults were "good" loans at the start. I'll be interested in seeing whether they simply present a few dozen or a few hundred individual examples and try to use either descriptive or inferential statistics about packages of mortgages as a basis for prosecution.

In any case, let's hope this results in the establishment of mandatory tough requirements for future loans. And uniform laws and regulations across all states eliminating non-recourse loans.

It's not about defaults. There are two issues. First, some mortgages were originated using falsified data. Second, the securitazation process for some MBS has been carried out in violation of local real estate and trust regulations, causing loss to the buyer of the MBS. In both cases, the mortgages were packaged and sold in a way that misrepresented their legal status and value.

The mortgages themselves may be in default but this is not an effort to deal with that. The intention here is to oblige the bank that originally extended the mortgage to incur the financial liability for the default and also whatever penalty for the misrepresentation. There are already a number of complaints filed by private buyers of MBS. This is not a new problem but the banks apparently have been dragging their feet on this.

 

[youbet]

It's not about defaults. .

Well........

I'm having a hard time buying in if your contention is that this legal action would be taking place even if there was not a high default level involved with the mortgages making up the packages. Defaults are what it's all about.

If lenders wind up assuming responsibility for defaulted loans and additionally penalities for any bad behavior they participated in in establishing the loans, I think lending requirements will toughen up. Good!

I think we're just arm wrestling over terminology and jargon here........

 

[Brat]

I suspect that there is someone on this forum who knows a lot about this issue but cannot speak to it. Some mortgage executives were doubtless hoping that the graves of those MBSs would not be disturbed. Many a forensic financial professional has been autopsying those bodies.

Like you I would like to see the humans who did this pay a price.

The rationale that the purchaser was a sophisticated investor and should have known better doesn't cut it with me unless there was full and accurate disclosure by all parties (originators, aggregators, and rating agencies).

 

[MichaelB]

Well........

I'm having a hard time buying in if your contention is that this legal action would be taking place even if there was not a high default level involved with the mortgages making up the packages. Defaults are what it's all about.

If lenders wind up assuming responsibility for defaulted loans and additionally penalities for any bad behavior they participated in in establishing the loans, I think lending requirements will toughen up. Good!

I think we're just arm wrestling over terminology and jargon here........

We agree with each other.

 

[Brat]

When people say that many good mortgage loans have failed because of the economy I agree. But tell me, what caused the economy to implode? Mortgage loans that were rotten at origination.

 

[youbet]

When people say that many good mortgage loans have failed because of the economy I agree. But tell me, what caused the economy to implode? Mortgage loans that were rotten at origination.

I take the other view Brat. A Tulip-mania bubble in housing prices coupled with the ongoing loss of jobs through outsourcing and technology caused the housing market to crumble. The crumbling of the housing market was but one cause of the "imploding economy."

Likewise, I believe that "fixing" the housing market is not the way to create jobs. Rather, creating jobs will fix the housing market. Home prices and interest rates are both low enough that when Americans are employed with incomes adequate to afford their own homes they will buy and eventually even bid prices up.

 

[MichaelB]

When people say that many good mortgage loans have failed because of the economy I agree. But tell me, what caused the economy to implode? Mortgage loans that were rotten at origination.

I take the other view Brat. A Tulip-mania bubble in housing prices coupled with the ongoing loss of jobs through outsourcing and technology caused the housing market to crumble. The crumbling of the housing market was but one cause of the "imploding economy."

One does not preclude the other. Greedy bankers, greedy homeowners, greedy investors, easy money.

Likewise, I believe that "fixing" the housing market is not the way to create jobs. Rather, creating jobs will fix the housing market. Home prices and interest rates are both low enough that when Americans are employed with incomes adequate to afford their own homes they will buy and eventually even bid prices up.

Jobs would be the best way to fix housing by far.

 

[GregLee]

Does anyone really think that fining a few people, or even sending them to jail, will improve business ethics and make future dealings conform to a higher standard of conduct? Come on, now. Vengeance may be sweet, but it won't make the world a better place.

 

[harley]

Does anyone really think that fining a few people, or even sending them to jail, will improve business ethics and make future dealings conform to a higher standard of conduct? Come on, now. Vengeance may be sweet, but it won't make the world a better place.

Vengeance would be sweet, if it could be achieved. More importantly, and I'm not sure how to achieve this in a free capitalist society, incentives need to modified to make it more important to the officers of the corporations and gov't agencies to work toward the common good instead of cutting corners and cheating to enrich themselves. Some smart people here. Someone should be able to come up with something.

 

[clifp]

I take the other view Brat. A Tulip-mania bubble in housing prices coupled with the ongoing loss of jobs through outsourcing and technology caused the housing market to crumble. The crumbling of the housing market was but one cause of the "imploding economy."

Likewise, I believe that "fixing" the housing market is not the way to create jobs. Rather, creating jobs will fix the housing market. Home prices and interest rates are both low enough that when Americans are employed with incomes adequate to afford their own homes they will buy and eventually even bid prices up.

I agree with first part and I;d add stagnating wages, and overheated consumerism caused people to use their houses as ATM.

Not sure about the second part. The Gordian knot is that housing construction provided lots of employment for low and medium skilled workers. There is no easy way to transform a construction worker into a software engineer, health care worker, or biotech lab technician. If we could just figure out a way of reviving the housing industry a bit that would also provide jobs and help jump start the economy. How to do this of course is the 6.4 trillion dollar question.

 

[MichaelB]

I agree with first part and I;d add stagnating wages, and overheated consumerism caused people to use their houses as ATM.

Not sure about the second part. The Gordian knot is that housing construction provided lots of employment for low and medium skilled workers. There is no easy way to transform a construction worker into a software engineer, health care worker, or biotech lab technician. If we could just figure out a way of reviving the housing industry a bit that would also provide jobs and help jump start the economy. How to do this of course is the 6.4 trillion dollar question.

When you figure out that last part let us know. I think its best to just step aside and let nature take its course...

 

[Brat]

We built more than enough housing during the bubble. Granted that there are a few communities with a shortage but not nearly enough to sop up unemployed construction workers and related manufacturing. Maybe we should hire construction workers to tear down unoccupied dilapidated buildings and return the sites to 'unimproved' status.