A recent article indicating that FHFA is taking action against some lending institutions, should get you thinking. Are any of these lenders listed in the article below YOUR clients (present or past)? And if some examinations of the appraisals done in the portfolios should make their way to any you have done, do you have a well documented workfile to withstand an investigation?
FHFA Sues 17 Banks to Recoup Mortgage LossesThe Federal Housing Finance Agency announced Sept. 2 that it filed suit against 17 of the nation’s largest financial institutions to recoup billions in losses from the sale of soured mortgage-backed securities to Fannie Mae and Freddie Mac.
The complaints, which were filed in federal courts in New York and Connecticut and in state court in New York, alleged violations of federal securities law and common law in the sale of residential private-label mortgage-backed securities to the two government-sponsored enterprises, the FHFA reported. FHFA is conservator of Fannie Mae and Freddie Mac.
The FHFA alleged that portions of the losses that Freddie and Fannie incurred on private-label mortgage-backed securities were attributable to misrepresentation and improper actions by banks, namely that the characteristics and descriptions of the loans were different and riskier than what was contained in the banks’ marketing and sales materials.
The complaints also alleged that loans were made to look less risky through inflated appraisals. Mortgage originators, among others, are alleged to have pressured appraisers to furnish inflated loan-to-value ratios that overvalued properties. Inflated appraisals were reported to be especially pervasive when originators packaged mortgages to be sold for securitization, which resulted in lower LTV ratios and therefore appeared less risky
The complaints seek damages, civil penalties and compensatory damages for negligent misrepresentation. The amount the FHFA seeks to recover, however, is not expected to equal the amount the GSEs paid for the MBS.
The suit is similar to one the FHFA filed against UBS Americas on July 27. In that case, the FHFA alleged the bank made false statements about 16 mortgage-backed securities it sold to Fannie and Freddie between 2005 and 2007. FHFA is seeking $900 million in damages in the UBS.
To date, the U.S. has spent $141 billion to shore up Fannie and Freddie, and has recovered about $18 billion from banks since the beginning of 2010, the FHFA reported.
Institutions named in the Sept. 2 complaint and how much the GSEs bought from each:
- JPMorgan Chase: $33 billion
- Royal Bank of Scotland: $30.4 billion
- Countrywide Financial Corp.: $26.6 billion
- Merrill Lynch: $24.8 billion
- Deutsche Bank: $14.2 billion
- Credit Suisse: $14.1 billion
- Goldman Sachs: $11.1 billion
- Morgan Stanley: $10.5 billion
- HSBC: $6.2 billion
- Bank of America: $6 billion
- Barclays: $4.9 billion
- Citigroup: $3.5 billion
- Nomura: $2 billion
- Société Générale: $1.3 billion
- First Horizon: $883 million
- Ally Financial: N/A
- General Electric Co.: N/A.