The Federal Housing Finance Agency (FHFA) will be filing lawsuits against the largest banks because they misled investors on the quality of AAA- rated mortgage securities that they sold to Fannie Mae and Freddie Mac during the credit bubble. The suits will be against Bank of America, JP Morgan, Goldman Sachs and Deutsche Bank. A suit was filed versus UBS in July to recover $900 million. All in all, the suits will seek to recover the $33 billion ($14 billion for Fannie Mae and $19 billion for Freddie Mac) in losses. Besides the FHFA, the banks are facing private investor and 50 state attorney general lawsuits. The latter are working on a $20 billion settlement with Bank of America, JP Morgan and Citigroup. The settlement will help homeowners being foreclosed on. Lastly, AIG is suing Bank of America for $10 billion. To reserve against these possible charges, Bank of America has been raising capital by selling non-core businesses.
The banks believe that mortgage securities lost value because of a slow economy and downturn in the housing market. AIG, Fannie Mae and Freddie Mac were sophisticated investors and knew the risks involved with the securities.
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