FHFA Recovers Nearly $8B from Banking Institutions in 2013

Posted: January 6, 2014 in Mortgage Information

As conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), recovered nearly $8 billion on behalf of taxpayers in 2013 through settlements with financial institutions.

FHFA sued 18 financial institutions in 2011 alleging violations of the federal Securities Act of 1933 and in some cases, alleging fraudulent activity, related to sales of private-label mortgage-backed securities to Fannie and Freddie between 2005 and 2007.

The GSEs’ regulator reached settlements with six institutions named in the 2011 suits last year, the largest of which was J.P. Morgan Chase & Co. for $4 billion.

FHFA settled with Deutsche Bank AG for $1.925 billion,UBS Americas (Union Bank of Switzerland) for $885 million, Ally Financial for $475 million, CitiGroup for $250 million, and General Electric Co. for $6.25 million. A non-litigation agreement was also struck outside of court with Wells Fargo Bank in October for $335.23 million.

Of the 18 lawsuits filed by FHFA, 12 are still pending a resolution. Named as defendants in these are: Barclays Bank, Bank of America, Credit Suisse Holdings (USA), First Horizon National Corp., Goldman Sachs & Co., HSBC North America Holdings (Hong Kong Shanghai Banking Corp.), Merrill Lynch & Co., Morgan Stanley, Nomura Holding America, SG Americas (Societe Generale), the Royal Bank of Scotland, and Countrywide Financial.

“FHFA remains committed to satisfactory resolution of the remaining actions,” the agency said in a separate statement released last month.

When FHFA stepped in as conservator of the nation’s two largest mortgage financiers in September 2008, the agency was charged with “preserving and conserving” the GSEs’ assets on behalf of taxpayers since Treasury pumped $187 billion of taxpayer dollars into the two companies over the last five years.

In line with this mandate, FHFA has aggressively pursued repurchase claims made by Fannie Mae and Freddie Mac to recoup GSE losses on bad loans sold to them by financial institutions in the private sector in the run-up to the housing crash. After a review of loans purchased by the GSEs during the 2005-2007 timeframe, FHFA determined the loans had different and more risky characteristics than was relayed in the marketing and sales materials used to sell the securities to the enterprises.

FHFA said the complaints filed in 2011 reflected its conclusion that some portion of the losses Fannie Mae and Freddie Mac incurred on these private-label mortgage-backed securities were attributable to misrepresentations and other improper actions by the firms and individuals named as defendants.

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