FHFA Attempts to Recover Billions from Mortgage Loses By Korollos Shalaby

The Federal Housing Finance Agency (FHFA), which oversees mortgage giants Fannie Mae and Freddie Mac, filed lawsuits last Friday against 17 financial institutions, in an attempt to recover billions of dollars in losses associated with high-risk mortgage investments.

The lawsuits were filed against several major Wall Street firms, including Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase. The FHFA claims these institutions misrepresented the quality of mortgage loan based investments.

"Based on our study, the FHFA argues that mortgages had different and more risky characteristics to those established in the descriptions given to market and sell these assets," the agency said in a news release.

The distortions included overestimate the ability of debtors to pay their mortgages, the number of loans on owner-occupied properties, and the amount of the debt of these houses in relation to their value.

According to the demands, in the middle of the last decade Fannie Mae and Freddie Mac bought from the aforementioned financial institutions more than 196,000 million (MDD) of these mortgage related assets.

These packages of securitized mortgages were an attractive investment during the 'bubble' estate, fueling the growth in mortgage loans and inflating the price of housing. But when the market collapsed and owners incurred massively in default, the value of these assets plummeted. Fannie Mae and Freddie Mac, which were among the biggest buyers of such assets, were also caught in the spiral.

Bank of America said that Fannie Mae and Freddie Mac said they understand the risk of investing in risky assets, and that these companies continued buying them, even after their regulator warned them that they had the necessary risk management. "Despite this, companies are now looking to other market participants to take responsibility for their losses," said Bank of America.

Fannie Mae and Freddie Mac, which the federal government assumed custody during the economic crisis of 2008, are the main sources of financing the U.S. housing market. They are dedicated to buy mortgages from lenders to keep in their books or turn them through securitization or insurance in assets. Companies also bought mortgage-backed assets issued by other institutions.

The FHFA, which is in charge of protecting the assets of the mortgage lenders on behalf of taxpayers, continues to seek damages. The exact extent of the damage will be determined in court.

According to Guy Cecala, CEO of real estate magazine Inside Mortgage Finance, legal action would acquire "large", it casts doubt on the quality of mortgage securities sold to all investors, not just Fannie Mae and Freddie Mac "The FHFA is really questioning whether most of the mortgages securitized and sold during the housing market boom violated securities law" says.

Government agencies and private investors are stepping up their actions against financial firms that securitized mortgages.

Last July, the FHFA sued UBS for the same type of deception in mortgage-backed assets. Last month, the company filed a complaint like AIG by 10.000 million against Bank of America. In May, the attorney general's office in Manhattan United States sued Deutsche Bank, arguing that his division MortgageIT made tens of thousands of toxic loans and then misled the Federal Housing Authority to ensure that.

Bank of America reached an agreement in June to 8.500 million from a group of investors for the poor quality of investments secured by mortgages.

Also, the attorney general of the country is trying to negotiate an agreement with mortgage servicers for irregularities in their foreclosure practices.

In the latest legal action, charges were filed against the following institutions: Ally Financial, Bank of America, Barclays Bank, Citigroup, Countrywide Financial, Credit Suisse Holdings, Deutsche Bank, First Horizon National, General Electric, Goldman Sachs, HSBC North America, JPMorgan Chase, Merrill Lynch / First Franklin Financial, Morgan Stanley, Nomura Holding America and the Royal Bank of Scotland.

Korollos Shalaby is a nationally acknowledged mortgage expert with over 6 years experience as a loss mitigation expert and mortgage finance consultant. He has owned several companies and has been at the forefront of all lending and banking practices since 2006.

Tags: Federal Housing Finance Agency, Fannie Mae, Freddie Mac