(10 am. – promoted by ek hornbeck)
President Obama’s jettisoning the EPA regulations dominated the Friday news dump. What was buried in the usual media hullabaloo was this:
Apparently the FHFA has found something that this White House hasn’t, the courage to hold the banks accountable for the losses from the sale of mortgage backed securities (MBS) to Fannie Mae and Freddie Mac. The suit surpasses the $20 billion settlement that the 50 state AG settlement is reportedly attempting to extract from the banks for a liability release over ALL issues in foreclosure fraud.
The lawsuits cover $105 billion worth of securities, and FHFA wants returns on some portion of the losses taken on the securities, which they attribute to illegal actions by the banks when they sold the MBS (specifically, misrepresentations about the underlying loans). Earlier reports said that the losses for Fannie and Freddie on private-label MBS came to around $30 billion, so that’s probably around what they will ask for. The LA Times story puts it at $41 billion in losses. Whatever the number, this is more than the 50 state AG settlement is reportedly attempting to extract from the banks for a liability release over ALL issues in foreclosure fraud. And this is just a representations and warrants case.
This may derail the 50 state AG attempts at an agreement that absolves banks from any liability:
The biggest banks are already negotiating with the attorneys general of all 50 states to address mortgage abuses. They are looking for a comprehensive settlement that will protect them from future litigation and limit their potential mortgage litigation losses.
“This new litigation could disrupt the AG settlement,” said Anthony Sanders, finance professor at George Mason University and a former mortgage bond strategist.
Banks may be more reluctant to agree to a settlement if they know litigation from other government players could still wallop their capital, he said.
As David Dayen so astutely observes:
. . . . FHFA is just a canary in the coalmine for the losses and the liability that these banks are holding because of their actions in mortgage origination, securitization, and servicing. You cannot have a banking sector with this many liabilities and expect a robust, well-functioning economy. This action is necessary for the rule of law as well as for the health of the nation.
Even better would be some of the people involved being held responsible and sent to prison.