Patt Morrison for September 2, 2011

Ghosts of 2008 linger for banks: government preparing lawsuit over bad mortgages

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Mario Tama/Getty Images

File: A Bank of America branch is seen in Times Square October 19, 2010 in New York City.

Mortgage backed securities, the original boogeyman of the 2008 financial crisis that eventually led to one of the deepest recessions in history, continue to haunt banks, consumers and the government. This morning there’s word that the Federal Housing Finance Agency, which oversees the government’s two mortgage giants Fannie Mae and Freddie Mac, is preparing to sue over a dozen of the nation’s biggest banks over soured mortgage bonds in a bid to recoup billions of dollars in losses from failed investments. When this lawsuit is officially filed it will become a part of the broad legal front against banks like Bank of America, Wells Fargo, JP Morgan Chase and Deutsche Bank, among others that is seeking to make good on losses from mortgage backed securities that totaled hundreds of billions of dollars. All 50 state attorneys general are continuing to pursue a lawsuit, and potential settlement, against these same banks for fraudulent mortgage practices. In the case of the federal government, Fannie & Freddie invested in mortgage-backed securities based on subprime and other risky loans that were originated by mortgage companies—the end result was a bailout to the tune of $141 billion to keep Fannie & Freddie afloat after massive losses by those risky securities. What do the banks say? They claim if they are made to pay out billions in settlements, given their already wobbly financial status, they might need another bailout. Should the banks be made to pay for their sins of the recent past?

Guests:

Kurt Eggert, professor of law, Chapman University School of Law; member of the Federal Reserve Board’s Consumer Advisory Council

Paul Kiel, reporter, ProPublica


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