Felix Salmon

How the FHFA lawsuits could imperil mortgage-settlement talks

By Felix Salmon
September 2, 2011

So here’s an interesting wrinkle in the mortgage-settlement talks: according to Nelson Schwartz, the Federal Housing Finance Agency is going to file lawsuits against a dozen or so big banks some time before Wednesday, claiming fraud in their mortgage-securitization departments.

This smells very much like the mortgage bond scandal that I was writing about last fall; finally, that shoe might be dropping. And more importantly, it would be a major securitization-related lawsuit being filed by one arm of the federal government, just as another arm is trying to put a big settlement together which might (or might not) give the big banks immunity against precisely such suits.

According to Schwartz, the timing of the suit has nothing to do with the settlement talks, and everything to do with the statute of limitations. But once the suits have been filed, it’ll be hard to persuade the FHFA to drop them quietly — especially if it doesn’t get a large check as part of the settlement. So count this as one more thing which mitigates against any settlement from happening. The banks won’t agree to anything unless they get immunity from securitization-related suits, and the government won’t give them that immunity, not least because it’s a plaintiff in a lot of those suits itself. Expect this saga to drag on indefinitely, rather than being brought to some kind of artificial end through the settlement talks.

10 comments so far | RSS Comments RSS

when the bankers go to jail my friends
when the bankers go to jail
we’ll finally see justice done
when the bankers go to jail

http://thepeakoilpoet.blogspot.com/2011/ 07/when-bankers-go-to-jail.html

Posted by ThePeakOilPoet | Report as abusive

A large check does not do the job. So what does? Only two things:

a) Drive the banks to bankruptcy. Fine each bank for each fraudulent foreclosure. How much? Make them GIVE the houses back to the foreclosed upon homeowner FOR FREE plus pay an extra $250,000 per house in fines.

I’d set a dollar limit (no jumbo mortgages qualify) so those who bought too much house do not get ANY benefits.

b) Criminal charges against all perps. Every last one of them.

Posted by MarkWolfinger | Report as abusive

From start to finish this has made no sense to me. First the government gives up the opportunity to effectively nationalize some of the big banks when they were “recapitalizing” them, which would have given them control over the way a lot of the mortgage mess played out, not to mention control over the executive pay debacle. They don’t do that supposedly to prove their free market chops to their receptive, respectful opposition across the aisle, to keep “confidence” in the banking system–how did that work out? And NOW after years of scandal, they’re going to jump back in and file lawsuits to try to extract massive settlements? Who benefited from this? The administration is a group of scared teenagers trying to make everyone like them, despite repeated failure–EXCEPT of course when it comes to making legally questionable war decisions.

Posted by mw1 | Report as abusive

The downside of Federalism is when lines are not clearly drawn on who is responsible for what. Same thing for overlapping bureaucracies.

In the first phase, everyone assumes some other party is taking care of it. Businesses arbitrage away from tough regulators.

Then after the disaster, they all say not my fault and point the finger away from themselves. Then when there is money of be made in court cases, they line up and file suits separately.

At some point, and maybe they are saying this quietly to the Fed, that if this keeps up, some big banks will have to declare bankruptcy, and then, who knows what anyone will get after the systemic risk issues. Then the Fed would act to protect its bastard offspring.

Posted by DavidMerkel | Report as abusive

It has everything to do with the statute of limitations. And it is way past time.

No one else has been doing their job. The Sec started investigations and then destroyed all the evidence. The Ags let ehir investigation flicker and die and are now going to let fines be enough.

let me repeat what I wrote in the earlier discusson on robo signing:

The 50 states AGs should be removed from their positions as ineffectual for not bringing justice back to the system. Until they do, there will never be consumer confidence and always be criminals flourishing and banksters profiting from fraud. Property law is a misnomer…

The Law profession should be defending the RULE OF LAW, but there isn’t enough money it it for them …

The AGs are dragging their feet and another arm is out for blood. So be it. “A major securitization-related lawsuit” is just what the doctor ordered to start healing the patient rather then just talking about the bleeding in senate hearings and offering bandaids.

DavidMerkel, you have described it all far too well. perhaps lobbying, campaign contributions and the revolving door from banks to justice to Government to the Fed means the those in collusion feel it’s better to kill the patient and protect the killers.

MarkWolfinger, there are many house flippers, real estate moguls and nasty criminals in states like Florida and California who would benefit greatly from such a generous “payback.” They are likely those who would benefit and abuse that entitlement. There should be some restitution for anyone who was wrongfully harmed, and those who harmed them should pay, but don’t go overboard!

Posted by hsvkitty | Report as abusive

OOps so sorry to not check my typing errors.

Posted by hsvkitty | Report as abusive

hsvkitty, I thought you just randomly hit the keyboard.

Posted by Danny_Black | Report as abusive

By the way, before you wrote this post did you bother to read to the amounts being talked about? 900million from UBS? Assuming “the new litigation would be similar in scope” we are talking about 12billion from a market that is several trillion. Hardly a meltdown.

Also would be nice to see Frannie and the buyside investors being held to account given then actually do have a legal fiduciary responsibility to do proper due diligence before investing.

Posted by Danny_Black | Report as abusive

MarkWolfinger: Drive the banks to bankruptcy. Fine each bank for each fraudulent foreclosure. How much? Make them GIVE the houses back to the foreclosed upon homeowner FOR FREE plus pay an extra $250,000 per house in fines.

Are you kidding me? Your telling me that it’s okay not to pay your mortgage. Then you should get a free house and $250K. If people paid their mortgages then we would not be in this mess. The greed of the American people got us in this debacle in the first place by buying a house or houses they couldn’t afford. Maybe people should start being responsible for themselves.

Posted by rob44 | Report as abusive

Way too much systematized fraud and abuse…..too late now. You cannot put humpty dumpty back together again. Anarchy.

Posted by weidnerlaw | Report as abusive

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