The Federal Government filed suit against more than a dozen big banks over mortgage backed securities the banks sold during the housing boom. Essentially the government claims the banks were selling securities that were riskier than advertised.
As we reported earlier, The New York Times reported this news, last night. But, now, the Federal Housing Finance Agency, which was appointed to oversee mortgage buyers Fannie Mae and Freddie Mac, filed the lawsuits today.
As NPR's Jim Zarroli put it to All Things Considered's Melissa Block, this lawsuit hits 17 of "the biggest, most important financial institutions" in the world. Bank of America, JPMorgan Chase, Deutsche Bank, Goldman Sachs and Citigroup are all included in the lawsuit.
Jim said this is the government's attempt to collect billions in losses that Fannie and Freddie sustained buying bad mortgages. The government alleges that the banks sold them by providing "materially false or misleading statements and omissions."
This is a suit similar to one filed by the government against UBS last year, said Jim. Except that it broadens the scope to many more financial institutions. The reason the government is acting now, said Jim, is because the statute of limitations is about to expire.
The Times classifies the government's move as the most "intense effort by the federal government to go after the financial services industry for its alleged mortgage misdeeds." Remember that the financial collapse in 2008 was in large part driven by the subprime mortgage crisis.
Jim told Melissa that this new suit "greatly complicates" life for banks. "A lot of them are already in a morass of legal problems," said Jim. Private investors are filing suits and many state attorney generals are taking them to court because of what they say are illegal foreclosure practices.
All of that along with the economic downturn "has left them in a precarious situation," said Jim.
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