The Federal Housing Finance Agency is filing lawsuits against Bank of America, Barclays, Deutsche Bank, Goldman Sachs, HSBC and RBS, among others, in order to recover losses suffered by Fannie Mae and Freddie Mac in the purchase of billions of dollars worth of the bonds in the lead up to the financial crisis.
RBS is being sued over $30.4bn (£18.7bn) worth of residential mortgage-backed securities sold to Fannie Mae and Freddie Mac, while HSBC and Barclays are being sued for $6.2bn and $4.9bn respectively.
The lawsuit alleges that the banks marketed the securities using documents that contained false or misleading statements.
RBS, HSBC and Barclays are all accused of misrepresenting the degree of risk of the securities by over stating the percentage of loans secured by owner-occupied properties, understating the percentage of loans with a high LTV, and inflating the securities’ credit ratings.
The FHFA says that RBS and HSBC also ignored warnings from third parties that the loans to be included in the securities did not meet the necessary underwriting standards.
It says: “RBS retained third parties, including Clayton Holdings, to analyse the loans it was considering placing in its securitisations, but waived a significant number of loans into the securitisations that these firms had recommended for exclusion, and did so without taking adequate steps to ensure that these loans had in fact been underwritten in accordance with applicable guidelines.”
The FHFA says that during the time period the securities were issued, between 2005 and 2007, the banks had enormous financial incentives to complete as many offerings as quickly as possible without regard to conducting due diligence and ensuring the accuracy of registration statements.
HSBC and Barclays declined to comment but RBS says it will fight the allegations.
A spokesman for RBS says: “We believe we have substantial and credible legal and factual defences to these claims and will defend them vigorously.”