Feds sue banks over toxic mortgage securities

The Federal Housing Finance Agency filed suit Friday against 17 national and international banking giants for their roles in the toxic mortgage securities scandal that led to the current housing crisis.

The banks include Bank of America, Citigroup, Countrywide, JP Morgan Chase and others, according to a press release from the agency. The release explained the suits:

These complaints were filed in federal or state court in New York or the federal court in Connecticut. The complaints seek damages and civil penalties under the Securities Act of 1933, similar in content to the complaint FHFA filed against UBS Americas, Inc. on July 27, 2011. In addition, each complaint seeks compensatory damages for negligent misrepresentation.

Certain complaints also allege state securities law violations or common law fraud.As conservator of Fannie Mae and Freddie Mac, FHFA is charged with preserving and conserving these companies’ assets and does so on behalf of taxpayers. The complaints filed today reflect FHFA’s conclusion that some portion of the losses that Fannie Mae and Freddie Mac incurred on private-label mortgage-backed securities (PLS) are attributable to misrepresentations and other improper actions by the firms and individuals named in these filings. Based on our review, FHFA alleges that the loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials provided to the Enterprises for those securities.

The agency oversees the troubled assets of Freddie Mac and Fannie Mae as part of the federal government’s move to shore up the housing market early on in the crisis. The agency argues that the banks knew, or should have known, that the mortgage securities they were bundling were based on fraudulent or bad loans. The lawsuits seek a total of $100 billion in fines and recovery from the banks.

“I am excited about the suit,” said Curtis Hertel, Jr, Ingham county’s register of deeds. “The reality is that there are both civil and criminal penalties on a lot of the banks’ illegal practices. I believe the corporations should be made to pay and their CEOs tried for the crimes committed. This is a step in the right direction and hopefully federal prosecutions will follow.”

But Steve Dibert, who runs the mortgage fraud investigation company MFI-Miami, is not as hopeful about the federal actions.

“It’s politics and next year is an election year. Fannie and Freddie are under attack based on falsehoods spread by conservatives who want them eliminated and by advocacy groups who have no background in lending. This lawsuit is an attempt to show that they are making an attempt to recoup losses,” Dibert said. “However, in my opinion this lawsuit is futile and won’t result in the settlements they think they are going to get. Even if they win, this lawsuit won’t put a dent in Fannie/Freddie’s mounting debts. Since Fannie/Freddie were taken over by the federal government they have become a dumping ground for toxic mortgages no one wants. When Treasury did that in 2007, they sealed the fate of Fannie/Freddie. It’s only a matter of time before a priest comes performs last rites.”

Dibert had very little positive to say about Fannie and Freddie and the housing market scandals.

“I would not be surprised if Fannie/Freddie knew this was going on, just like the servicers knew it was going on,” Dibert said. “No one figured they were going to get caught and they figured even if they did, no one will have the testicular fortitude to convict them. It’s like Captain Renault from Casablanca when Rick’s get raided by the Nazis: ‘I’m shocked to learn gambling is going on here!’ Then the attendant says, ‘Here are your winnings, sir.’”

This action comes as officials across the state have identified more and more questionable documents related to the foreclosure document. The questions arise from what is called robo-signing. This is where many people, under penalty of perjury in some instances, sign the same legal documents as part of documenting property sales.

Friday, the Associated Press reported that robo-signed documents dated back at least a decade.

Hertel has been a leading voice in the battle over robo-signed documents here in Michigan.

“I am not surprised that robo signing went back far. MERS [Mortgage Electronic Registration System] was created in 1995 to stop filing many mortgage documents with Register of Deeds across the county,” Hertel said of the robo-signing revelation. “At that point banks stop caring about filing documents in the public record unless they had to. At that point documents that were never created had to be and it makes sense that robo-signing would be an issue.”

Dibert said the AP revelation is in line with his experience as well.

“MFI-Miami has found robo-signed documents going back to 2001 in Michigan and 1998 in other states,” Dibert said. “The discovery of robo-signing happened two years ago in Florida.”