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US banks to be sued over mortgage bonds

A dozen big banks in the US are set to be sued for allegedly misrepresenting the quality of mortgage securities sold at the height of the housing boom.

According to the New York Times, the federal agency that oversees Fannie Mae and Freddie Mac is expected to file suits against the Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank and others in the coming days.

In the suits, the Federal Housing Finance Agency will argue that the banks did not perform due diligence when assembling and marketing the mortgage securities, and failed to identify that borrowers’ incomes were inflated or falsified.

The New York Times says that individuals with knowledge of the case say it will be similar in scope to a suit filed against UBS in July by the same agency, which seeks to recover at least $900m.

The Bank of America, Goldman Sachs and JPMorgan all declined to comment, while a spokesman for Deutsche Bank told the New York Times: “We can’t comment on a suit that we haven’t seen and hasn’t been filed yet.”

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  • Jonathan Burridge 3rd September 2011 at 5:08 pm

    Rather than sitting in the sun today I have sat in front of my PC reading the summons (feel free to send me an ipad2).

    Lending processes are very different, however, we had mass packaging at the time of the crunch and a very active non-conforming market.

    Reading the detail makes me wonder how long it will be before we see similar steps here.What is sounding alarms for me is the reliance in the report on AVM’s to question valuations completed 5 or more years ago, on the basis that they are more accurate than a surveyor.

    Also, the credit agencies determined a rating based upon data provided by the lender – what happened to independent verification?

    How is it that, considering the wide spread nature of the alledged fraud and all the parties that were pressured and bullied at the time, the US regulator did nothing. Sounds familiar?

    There could be significant ramifications if this ends in the court room (none least that the US are now suing the UK as we are owners of RBS).

    When will the finger pointing end and the postive and constructive work commence?