The United States government recently filed suit against 17 financial companies, including, but not limited to, the largest domestic banks, for selling Fannie Mae and Freddie Mac mortgage-backed securities worth billions of dollars that turned bad when the housing market collapsed.
Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., and Goldman Sachs Group Inc. were some of the financial firms which were targeted by the lawsuits. Also, European banks including the Royal Bank of Scotland, Barclays Bank, and Credit Suisse were also included in the recent lawsuit.
These complaints were filed by the Federal Housing Finance Agency. This agency oversees Fannie and Freddie which purchase mortgage loans and securities issued by lenders. The total price of the mortgage-backed securities sold to Fannie and Freddie equals $196 billion.
At this time, the federal government has not disclosed the amount of damages it is seeking against the aforesaid entities. However, it is speculated that it seeks to cancel the securities sales and to be compensated for the lost principal, interest payments, and the associated legal fees. It is generally expected that the parties settle legal disputes in the near future and before reaching the trial.
This epic battle between the federal government and banks is a by-product of the lack of regulation in the mortgage industry which has caused significant distress to the public. As we all know, many Americans faced or are facing foreclosure of their homes. This matter begs the question as to what happened to capitalism and the American dream? Is this the end or just the beginning of our financial crisis?
Please stay tuned for more news and analysis of this important topic on future blog posts.