Friday, September 2, 2011

Turn On The Lights, Watch The Roaches Scatter Part 78

The Obama administration is finally dropping the hammer on the big mortgage banks.

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

So yeah, this is pretty much a nuclear missile right at Wall Street.  The question is what's in the payload, serious legal material or a dud.  If the Obama administration is serious about suing the big banks to the point of then forcing a massive settlement that absolves the banks of any more legal indemnity for a mere pennies on the dollar, then we're absolutely in for another financial crisis.

On the other hand, stockholders are going to ream the big banks over these lawsuits, and the banks themselves are going to certainly need something of another bailout.  Maybe an orderly Plan N is in the works to break the banks up.  Or maybe it's the final piece of the puzzle to unleash TARP 2/QE 3.

It'll depend on the lawsuit, but bank stocks are probably not going to be doing very well come, say Wednesday.

[UPDATE] The hammer, she is large and is heavy like one hundred billion dollars.

The agency said in its filings that Fannie Mae and Freddie Mac bought $6 billion in mortgage-backed securities from Bank of America; $24.8 billion from Merrill Lynch, which Bank of America took over in 2008; $3.5 billion from Citigroup; $11.1 billion from Goldman Sachs and $4.9 billion from Barclays. The suits also cover $2 billion in securities from Nomura, $33 billion from JPMorgan, $883 million from First Horizon, $14.2 billion from Deutsche Bank, $14.1 billion from Credit Suisse, $1.3 billion from Societe Generale (GLE) and $6.2 billion from HSBC.

The government would like that money back, please. Now. Thanks.  Not in that list, Wells Fargo, which may actually be the only megabank left in America after the smoke clears.

No comments:

Related Posts with Thumbnails