Econintersect: The Federal Housing Finance Agency (FHFA) will seek $6 billion from the Bank of America in compensation for MBS (mortgage backed securities) the bank sold to Fannie Mae and Freddie Mac with misstated “representations and warrantees”, according to a report in the Financial Times. The FHFA has suits pending against 17 banks for defrauding Fannie and Freddie. According to the FT, Bank of America is expected to have the largest dollar exposure of the 17, with 12 cases still unsettled, in addition to Bank of America and JP Morgan Chase.
A significant part of the Bank of America liability derives from its acquisition of Countrywide Financial during the Great Financial Crisis of 2008. If there are criminal indictments in the JP Morgan case, which is expectd by some (see GEI News), it is likely that employess and executives of Countrywide may face similar exposure.
The JP Morgan and Bank of America cases may form the blueprint for actions to come. From the Financial Times:
Some people involved in sprawling negotiations between the industry and different government agencies believe the biggest banks will end up with large sweeping settlements similar to that just agreed by JPMorgan, incorporating resolution of claims from the Department of Justice.
People on both sides of the wrangling believe the government’s hand has been strengthened by the deal with JPMorgan, making it harder for other institutions to get a cheaper deal and leaving them the choice between paying billions of dollars upfront or risk a potentially expensive battle in the courts.
Last summer paid settlements totalling $935 million to the SEC and the FHFA ($885 million to the FHFA) as financial penalties for their MBS transgressions. Also earlier this year Citgroup agreed to pay two settlements totalling $1.362 billion to the FHFA representing Fannie and Freddie for MBS misrepresentations. The case against GE was for a much lower amount of MBS fraud. That case was settled at the beginning of 2013 and the terms were not disclosed.
It now appears that the three who settled early made a wise choice because the bar has been raised by JP Morgan and Bank of America.
However, in spite of these multi-billion dollar settlements, some experts believe that the monetary amounts are far short of the restitution which should be extracted from the financial giants that participated in the destruction of trillions of dollars of wealth. See GEI News.
Source:
- Mortgage watchdog seeks $6bn from BofA (Tom Braithwaite, Kara Scannell, Camilla Hall and Gina Chon, Financial Times, 20 October 2013)
- JP Morgan: 13 is an Unlucky Number (GEI News, 20 October 2013)
- UBS Agrees to Settle Federal Claims in Mortgage Case (The New York Times, 06 August 2013)
- Citigroup will pay Freddie Mac $395 million in mortgage settlement (Agence France-Presse, The Raw Story, 25 September 2013)
- FHFA says settlement reached with GE in mortgage case (Nate Raymond, Reuters, 23 January 2013)
