Statements That Were Materially False
Readers suggested a topic on the latest mortgage related lawsuit. “Uncle Sam, Amalgamated versus Megabank, Inc? What next: Bankers in orange jump suits? Let’s hope this is the beginning of a movement to break up the world’s outlaw international investment banks into non-systemically risky, small-enough-to-regulate pieces.”
A reply, “I believe I said quite some time ago that government action against the banks would come but the process was extremely complicated and it would take a while for it all to get everything put together and announced. I doubt this is the end of it.”
One added, “Finally! Let’s hope they do not simply settle. I want to see someone actually pay for what they did.”
And last, “So, if this whole thing were a book or a movie, we’re finally getting to the good part? (I sure hope so!)”
The Associated Press. “The government on Friday sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed. Among those targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., and Goldman Sachs Group Inc. Large European banks including The Royal Bank of Scotland, Barclays Bank and Credit Suisse were also sued.”
“In a statement Friday, Bank of America rejected the claims in the government’s lawsuits. Fannie and Freddie invested heavily in the mortgage-backed securities even after their regulator said they didn’t have the needed risk-management capabilities, the bank said. ‘Despite this, (Fannie and Freddie) are now seeking to hold other market participants responsible for their losses,’ it said.”
“Also sued Friday were are Ally Financial Inc., formerly known GMAC LLC, Deutsche Bank AG, First Horizon National Corp., General Electric Co., HSBC North America Holdings Inc., Morgan Stanley, Nomura Holding America Inc., and Societe Generale. Ally Financial said in a statement said the government’s ‘claims are meritless, and the company intends to defend its position aggressively.’ A spokeswoman for First Horizon said the bank intends to ‘vigorously defend’ itself.”
This Is Money. “Taxpayer-owned Royal Bank of Scotland yesterday emerged as one of the main targets of a multi-billion pound legal case brought by the authorities in the United States. If successful, the claim would be a savage blow to RBS’s finances and shatter any hopes of British taxpayers making back the cash they invested in bailing out the bank for years to come.”
“The 17 banks, which include most of America and Europe’s leading financial institutions are alleged to have a sold a total of more than $200 billion (£123billion) of mortgages to America’s state-sponsored mortgage companies Freddie Mac and Fannie Mae at the height of the credit boom. RBS sold £18.5billion of the mortgages, second in scale only to JP Morgan Chase, which sold £20.3billion.”
“The amount of damages being sought is unclear, but in an identical case, the FHFA is seeking £555million in damages from Swiss bank UBS after it sold £2.8billion of mortgage securities. If that rate of damages was reflected in the new cases, RBS would be facing a claim for £3.7billion, Barclays just under £616million and HSBC £770million. The total being sought by the FHFA would be about £24.7billion.”
“All 17 legal suits make the same basic claim that the sales documents used to sell the mortgage investments contained statements that were ‘materially false’ and hid important information about the quality of the mortgages. In close detail over hundreds of pages, the documents allege the information about the loan to value of mortgages, the ability of borrowers to repay and the numbers who were home-buyers rather than investors was inaccurate.”
The Independent. “The FHFA was given three years from September 2008, when Fannie Mae and Freddie Mac were nationalised, to bring certain claims based on alleged past wrongdoing. The lawsuits were filed late yesterday in courts in New York and Connecticut, and the banks are likely to fight them vigorously. Deutsche Bank, one of the first to react, said: ‘Fannie Mae and Freddie Mac are the epitome of a sophisticated investor, having issued trillions of dollars of mortgage-backed securities and purchased hundreds of billions of dollars more.’”
The Times. “Thirteen senior figures at Royal Bank of Scotland, HSBC and Barclays have been named in litigation brought by the US accusing the banks of mis-selling billions of dollars of mortgage-backed securities. Those named in the lawsuit were five senior bankers from HSBC, five from RBS and three from Barclays. They include Neal Leonard, chairman of HSBC’s mortgage securities subsidiary HIS, and Todd White. Both joined from Lehman Brothers in 2004.”
“At Barclays, Michael Wade, the former head of its mortgage subsidiary SABR, who left for Credit Suisse in April last year and quit the Swiss bank a year later, was named. So, too, were John Carroll, a managing director at Barclays, and Paul Menefee, SABR’s chief accounting officer, both of whom joined from Morgan Stanley in 2003.”
“The five RBS bankers named included Joe Walsh, its former global co-head of credit markets in the Americas, who has since left to join Fortress Investment, a private equity company.”
“His departure left John C Anderson, also named in the suit, in sole charge. Other defendants include Carol Mathis, a former partner at PwC who joined RBS in 2000 as chief financial officer of capital markets; James Esposito, a managing director of capital markets and general counsel of acceptance and financial issue; and Bob McGinnis, also a managing director and the head of asset-backed finance and trading of capital markets.”
“RBS said it would defend itself vigorously against the allegations, saying that it had ’substantial and credible legal and factual defences to these claims.’”
The Daily Caller. “In the wake of the real estate meltdown, Hollywood has created a new bad guy: cold-hearted bankers bent on foreclosure. The Tom Hanks, Julia Roberts flop ‘Larry Crowne’ stars Hanks as a Los Angeles man facing foreclosure after being laid off from his sales job. Larry served in the Navy for 20 years and presumably has a pension, but that’s no help with his mortgage upside down.”
‘In ‘Warrior,’ opening September 9, a high school teacher and his wife work three jobs between them but still face foreclosure after pulling money out to pay medical bills for their stricken daughter.”
“Even the otherwise compelling ‘Machine Gun Preacher’ (opening November 18) portrays a loan officer callously refusing to give a preacher another second mortgage, money intended to support an orphanage in the Sudan.”
“The movie trend reflects America’s anger at banks, and also some of the illogic. The bank scene in ‘Warrior,’ an otherwise excellent but violent Rocky-esque film about Mixed Martial Arts, is particularly confusing. Brendan Conlon (Joel Edgerton) argues with the bank about his county assessment, although banks have no control over county assessments nor do assessments change the terms of the mortgage. One wonders if the screenwriter has any knowledge of mortgages at all or if the foreclosure threat was just a convenient plot device.”
“The bottom line? Brendan has taken all the value out of his house and now expects the bank to bail him out. Good thing he knows how to throw a punch in the Ultimate Fighting Championship, which offers big prize money.”
