Investeens

A few days ago, the Federal Housing Finance Agency (FHFA) filed a lawsuit against 17 banks that sold mortgages to Fannie and Freddie. The lawsuit, which will grant the GSE’s $196 billion if all charges are met, is based upon suspicion that the banks intentionally mislead Fannie and Freddie into thinking that the mortgages bought were more stable than they really were.

However, the banks are fighting back. Bank of America claims that Fannie and Freddie already declared their losses were due to instability in the housing market such as falling housing prices. The spokesman of Bank of America also claims that they knew the risks entailed in buying the mortgages, yet still proceeded with it. The Royal Bank of Scotland announced that it has “credible legal and factual defenses” to dismiss the charges against itself. Switzerland’s biggest bank, UBS AG, said that Fannie and Freddie’s claims have no backing to them.

Interestingly enough, many of the banks in question have declined to comment on the lawsuit, including Citigroup, JPMorgan, GE, Morgan Stanley, Goldman Sachs, HSBC, and others. The question that needs to be asked is why do these banks refuse to comment on this issue? It’s possible that these banks know they misled Fannie and Freddie into buying unsafe mortgages, and have no way to disprove the charges against them.

If all or even some of the banks are found liable, Fannie and Freddie will be awarded with a huge sum of money. This could greatly help the American taxpayer, as Fannie and Freddie have received tens of billions of dollars of money to keep them afloat. They can use some of what they collect to pay this aid back!

Read more on this lawsuit here.