America sues Wall Street
The Federal Housing Finance Agency is aiming to file suit against some of the biggest banks in America for what actions that they say caused mortgage giants Fannie Maw and Freddie Mac to lose billions of dollars. The Federal Housing Finance Agency oversees both Fannie and Freddie and says that big-time banks bundled home loans into bonds that investors never should have had a chance to buy, causing the mortgage lenders to lose boatloads.
While the FHFA hasn’t filed suit yet, a source close to the matter has broken the news to Reuters. The New York Times adds that a source of their own has confirmed that Bank of America, JPMorgan, Deutsche Bank and Goldman Sachs Group Inc are all facing litigation. Those institutions are already facing to lose billions to settle other charges of abuse regarding mortgage lending and foreclosure practices, and coupled with the yet-to-be filed lawsuit, some of the biggest banks in America stand to crumble at a time when much of the American economy has already been faced with that fate. The American International Group (AIG) has been seeking over $10 billion losses from Bank of America since last month when they alleged that the institute duped investors. The US Department of Justice has also already announced plans to attack Deutsche Bank in a civil suit.
The FHFA has been investigating unjust actions by the banking giants for quite some time but it has taken years since the real estate crisis for any wheels to truly be put in motion. Last year they subpoenaed banks so that they could obtain documents relating to loans that tried to market to investors, to which Fannie and Freddie say were misrepresented.
As the suit would serve as punishment to the big banks long-overdue, it could cause even more catastrophe for the US markets.
“Any bad news such as new lawsuits is inevitably going to put the stock under pressure,” Richard Staite, an analyst at Atlantic Equities in London, says to Bloomberg of Bank of America. “There is a question hanging over the company as to whether it needs to raise new equity. If the lawsuit was to result in significant new losses, then it becomes more likely that the company might need to raise equity, which would be a difficult thing to do in the current market.”
Nader Naeimi of AMP Capital Investors Ltd adds that “Bank of America, being at the epicenter of these problems, is going to get smashed.”