U.S. ready to sue banks over mortgage losses

Marketplace Staff Sep 2, 2011
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U.S. ready to sue banks over mortgage losses

Marketplace Staff Sep 2, 2011
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Jeremy Hobson: The federal government is on the verge of filing lawsuits against the nation’s biggest banks. The New York Times reports this morning that the suits will accuse the banks of selling bad mortgages during the housing boom and saying they were top quality. Marketplace’s Eve Troeh joins us live now with the details. Good morning.

Eve Troeh: Good morning.

Hobson: So Eve, what do we know so far about this coming lawsuit?

Troeh: Here’s what we know: The Federal Housing Finance Agency — that’s the group in charge of Fannie Mae and Freddie Mac — it’s suing the big banks, Bank of America, JPMorgan Chase, Goldman Sachs, others too. That could happen as early as today. Tuesday at the latest because of a court deadline. The agency wants to get billions of dollars out of these banks. It says they could have seen that the mortgage-backed securities they sold were awful, that it was obvious many people who took out mortgages were not making enough to pay for the homes. When those people defaulted, that left the agency and us, the taxpayers, on the hook for about $30 billion.

Hobson: And are the banks saying anything at this point?

Troeh: Oh no. They don’t have a comment on the lawsuit — they say because they haven’t seen it yet. Not that if they have, they would have a comment. But their standard line has been that securities are a risk, everyone knows that. The losses were due to a general downturn and not their mistakes.

Hobson: And how does this lawsuit or this series of lawsuits fit into the other legal actions that are going on from the housing crisis?

Troeh: Well, if you think of the mortgage crisis as a thriller novel, we’re past the exposition and finger pointing, and we’re onto the intense legal action. You have the state attorneys general — all 50 of them — trying to settle with the big banks. And they want about $20 billion to lower people’s monthly payments for those bad mortgages. And then there are the investors who bought the bad mortgages — they want to make the big banks buy them back. But if the banks are on the hook now for the federal government for $30 billion from the lawsuit, that could have trouble paying back everybody else — the states, investors, and other banks. You could say that would leavea lot of disgruntled stakeholders for the mystery sequel.

Hobson: And it’s interesting because if the government makes the banks pay $30 billion more, it could put the banks in a weaker positions, weaken the financial system and then hurt the federal government, so sort of a catch-22.

Troeh: Yes.

Hobson: Marketplace’s Eve Troeh, thanks so much.

Troeh: Thank you.

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