Government Sues 17 Lenders for Mortgage Fraud

Last week reported that the Federal Housing Finance Authority (FHFA) was going after Bank of America, JP Morgan Chase and Goldman Sachs were being sued by the FHFA for mortgage fraud.  When the final report was released it turns out that 17 lenders are in trouble with the government’s mortgage finance agency including, in addition to the three mentioned earlier, Citigroup, Deutsche Bank, Barclays PLC, Nomura Holdings Inc, Morgan Stanley, Ally Financial, Credit Suisse Group, First Horizon, General Electric Co, HSBC Holdings North America unit, the Royal Bank of Scotland Group PLC and Société Générale SA.

This group is accused of selling Fannie Mae and Freddie Mac about $200 billion in mortgage-backed securities that later proved toxic.

Analysts are divided on the impact and appropriateness of this move.  There are concerns that this move will impair cash-strapped lenders and make it even less likely that the housing industry will get the help needed to climb out of the doldrums.  The move by FHFA may also be a preemptive strike that will limit the ability of the state AGs from making any meaningful settlement with the main players of the robo-signing mess. Some believe that Fannie Mae and Freddie Mac are sophisticated investor entities that should have been responsible for doing their due diligence on these mortgage-backed securities.  Some of the lenders claimed that the problem was not their fault, but rather they were just victims of negative market forces.

Others believe that if the lenders misrepresented the risk levels associated with these MBS bundles, then the lenders are guilty of fraud and should be punished.

Where do you stand on the issue of whether the FHFA should be suing these lenders at this point?