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Big banks face firing squad

By Judy Martel ·
Monday, September 5, 2011
Posted: 1 pm ET

The big banks are fielding a barrage of litigation and accusations for their part in the mortgage mess.

The latest salvo came from the Federal Housing Finance Agency, or FHFA, which oversees Fannie Mae and Freddie Mac. The regulator filed suit Friday against 17 major banks, including Bank of America, JPMorgan Chase, Citigroup and Goldman Sachs. The banks are being charged with bundling and selling mortgage backed securities that they knew to be low quality and failing to do due diligence on borrowers who ultimately defaulted. The FHFA is seeking billions of dollars in compensation.

Bank stocks took a beating Friday, led by an 8 percent drop in Bank of America stock.

Fannie Mae and Freddie Mac, now owned by the government, lost more than $30 billion in failed securities and much of the tab was picked up by taxpayers. Since the government took over in 2008, taxpayers have paid $140 billion to keep the agencies afloat. The FHFA is seeking to recoup some of those costs, but bank representatives claim that all the legal action will further stymie the housing market. Some analysts are worried that a bloodletting of cash to settle the suits will further hurt the financial industry, or worse, require more government bailouts.

Five of the biggest financial institutions, Bank of America, J.P. Morgan Chase, Wells Fargo, Citigroup and Ally Financial are already under fire from all 50 state attorneys general seeking billions in settlement for various mortgage wrongdoing .

New York forces banks to clean up their act ahead of a sale

In a separate action last week, three financial firms have agreed to end practices that led to mishandling mortgage paperwork and "robo-signing" foreclosure documents without reviewing them. The agreement was made with New York financial services superintendent Benjamin Lawsky and Goldman Sachs Group, Goldman's Litton Loan Servicing business and Ocwen Financial Corp.

An article in the Wall Street Journal says the firms also agreed to reduce mortgage principal by 25 percent for 143 New York borrowers. Lawsky imposed these reforms as part of the conditions of Goldman's pending sale of Litton to Ocwen, which would become the 12th largest mortgage servicer in the nation after the sale, with 700,000 loans.

The flurry of litigation against banks will eventually be sorted out, and ultimately, many analysts believe the financial institutions will have to pay --it's just a question of how much.

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ted murgatroyd sr
October 03, 2011 at 1:36 pm

I worked as a Mort. loan collector (for an S.&L., and a bank from 1979 to 1991. I've seen what goes on in the "back rooms" of some of these institutions, so I've changed over to a Credit Union. Smartest move I've made. The bank charges on everything but opening the doors. The credit union made me open a savings account. So now I have to save money; as opposed to paying charges I can't afford. "I told them there's problems, only solutions......"

Bob Burnitt
September 12, 2011 at 11:25 am

I WAS a TEXAS Real Estate Apprasier, and I have been screaming BLOODY MURDER about the Loan Fraus I used to see on a daily basis in that RACKET since the 90's. In 2005, I did get some "press" over it, you can Google my name, Bob Burnitt ans see a little of it that is still on the internet. But NOBODY would lift a finger to ENFORCE EXISTING LAW!!! I have worked for over 200 lenders, and I have not found even ONE yet that will NOT fire an apprasier the first time he refuses to LIE for them, or to deviate from the LAW for them, and they won't even PAY for the honest appraisal if you did not get the money UP FRONT. I will be glad when they ALL go broke, the trouble is, THEY are taking us with them. But it is the CITIZENS FAULT in the END, they do NOT MAKE THE PEOPLE THEY VOTE FOR ACCOUNTABLE!!! My CongressBOY Joe Barton R-Texas, would not do a thing to prevent this fiasco. He told me, "Stealing is just human nature, and he could NOT change human nature." That is what we have PRISON for there "Smoky Joe". Bob Burnitt Ellis County Texas.

September 06, 2011 at 11:25 pm

REALLY ????? 143 home loans princeiple's reduced what a joke that won't help the market at all.... the bankers need to go to JAIL !!!!! and reduce ALL principle's after all they the banks made ALL of us lose\.... when are people going to start to fight back and stop letting this happen !!! i have lost ALL faith in this country.......

September 06, 2011 at 3:18 pm

And the wheels on the boss go round and round...

September 06, 2011 at 1:29 pm

The former heads of huge finacial institutions are now heads of our gov treasury, fed reserve, etc. Gov and big banks go hand in hand. Look who was obamas biggest campaign contributor, a huge bank.

September 06, 2011 at 11:43 am

OK Bob we know who you work for!!!! Make the BANKS quit stealing our HOMES!!

Bob harken
September 05, 2011 at 1:48 pm

C'mon....can't we just leave the banks alone
and get back to work!?