Federal Agencies Suing Over Bad Mortgages

The Federal Home Loan Bank (FHLB) is suing banks that made dodgy mortgage loans and then misrepresented them:

Last week, the Federal Home Loan Bank of San Francisco sued a throng of Wall Street companies that sold the agency $5.4 billion in residential mortgage-backed securities during the height of the mortgage melee. The suit, filed March 15 in state court in California, seeks the return of the $5.4 billion as well as broader financial damages.

Not also that the quasi-governmental GSEs, Fannie Mae and Freddie Mac, are suing too:

Fannie Mae and Freddie Mac may force lenders including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. to buy back $21 billion of home loans this year as part of a crackdown on faulty mortgages.

Interesting times.

Full FHLB statement below fold:

Statement Regarding PLRMBS Litigation
March 15, 2010


Today the Federal Home Loan Bank of San Francisco (Bank) filed complaints in the Superior Court of California, County of San Francisco, against nine securities dealers in relation to certain of the Bank’s investments in private-label residential mortgage-backed securities (PLRMBS). The Bank is seeking to rescind its purchases of 134 securities in 113 securitization trusts, for which the Bank originally paid more than $19.1 billion. The Bank’s complaints allege that the dealers made untrue or misleading statements about the characteristics of the mortgage loans underlying the securities.

All of the PLRMBS in the Bank’s mortgage portfolio, including those identified in the complaints filed today, were rated AAA when purchased, based on the information provided by the securities dealers. The Bank employs conservative criteria and guidelines for all its MBS investments. The Bank invests in high-quality financial instruments to facilitate its role as a cost-effective provider of credit and liquidity to its member financial institutions. These investments support the Bank’s mission of promoting housing, homeownership, and community development by providing the Bank with greater financial flexibility in helping members meet the credit needs of their communities during all economic times and in funding the Bank’s Affordable Housing Program and other programs that create affordable housing and promote community economic development.

In filing these complaints, the Bank seeks to continue supporting its mission and to protect the interests of its member shareholders, which include over 400 community banks, credit unions, and savings institutions headquartered in Arizona, California, and Nevada that serve millions of consumers.