17 banks face $196b mortgage suit in US

New York:  Bank of America and JPMorgan Chase & Co were among 17 banks sued by the US to recoup $196 billion (Dh719 billion) spent on mortgage-backed securities bought by Fannie Mae and Freddie Mac.

The Federal Housing Finance Agency (FHFA), on behalf of Fannie Mae and Freddie Mac, filed 17 lawsuits on Friday in New York state and federal courts and in federal court in Connecticut. The FHFA accuses the banks of misleading Fannie Mae and Freddie Mac about the soundness of the mortgages underlying the securities.

"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 FHFA said in a statement.

FHFA is seeking to rescind the transactions plus other damages, including civil penalties and punitive damages in cases alleging misconduct.

In addition to JPMorgan and Bank of America, the agency filed complaints in federal court in Manhattan Friday against Citigroup, Goldman Sachs Group, Merrill Lynch & Co, Barclays, Nomura Holdings, HSBC Holdings, Societe Generale, Credit Suisse Group, Deutsche Bank AG and First Horizon National Corp.

The FHFA sued Ally Financial, Countrywide Financial, General Electric and Morgan Stanley in state court in Manhattan, according to the agency. It sued Royal Bank of Scotland Group in federal court in Connecticut.

Fannie Mae and Freddie Mac have operated under US conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency.

UBS suit

The FHFA sued UBS, Switzerland's biggest bank, in July over $4.5 billion in residential mortgage-backed securities sold to Fannie Mae and Freddie Mac, claiming the bank misstated the risks of the investments.

"The claims brought by the FHFA are unfounded," said Frank Kelly, a spokesman for Deutsche Bank. "Fannie Mae and Freddie Mac are the epitome of a sophisticated investor."

Ally said in a statement that it believes FHFA's claims are meritless and the company intends to defend its position.

Fannie Mae and Freddie Mac "acknowledged that their losses in the mortgaged-backed securities market were due to the unprecedented downturn in housing prices and other economic factors," said Larry DiRita, a spokesman for Bank of America. Kim Cherry of First Horizon said the company would defend itself. The firms claimed to understand the risks, and continued buying, even after their regulator said they lacked adequate risk-management capabilities to do so, DiRita said.

Company representatives who declined to comment on the suits included Danielle Romero-Apsilos of New York- based Citigroup, Kerrie Cohen of London-based Barclays, Kristin Lemkau of JPMorgan in New York and Russell Wilkerson of Fairfield, Connecticut-based GE.

What they bought

The Federal Housing Finance Agency (FHFA) said in its filings that Fannie Mae and Freddie Mac bought $6 billion (Dh22 billion) in mortgage-backed securities from Bank of America; $24.8 billion from Merrill Lynch, which Bank of America took over in 2008, and $26.6 billion from Countrywide, which Bank of America acquired the same year. The FHFA claims Fannie Mae and Freddie Mac bought $33 billion in securities from JPMorgan and $30.4 billion from Royal Bank of Scotland. According to the complaints, Fannie Mae and Freddie Mac also bought $14.2 billion from Deutsche Bank, $14.1 billion from Credit Suisse, $11.1 billion from Goldman Sachs, $10.6 billion from Morgan Stanley, $6.2 billion from HSBC, $6 billion from Ally, $4.9 billion from Barclays, $3.5 billion from Citigroup, $2 billion from Nomura, $1.3 billion from Societe Generale, $883 million from First Horizon and $549 million from GE.