The Federal Housing Finance Agency is on the verge of filing a barrage of civil claims against investment banking firms that packaged nonprime loans into MBS while misrepresenting the quality of the underlying collateral, according to a new published report.
The New York Times reported Friday morning that the agency will sue Bank of America, Deutsche Bank, Goldman Sachs, JPMorgan Chase and other firms. At press time, a FHFA spokeswoman had not returned telephone calls about the matter.
The lawsuits – which could be filed as early as Friday — are the byproduct of subpoenas FHFA issued last year to at least three-dozen companies.
During the height of the subprime boom from 2002 to 2007, at least a dozen Wall Street firms issued more than $2 trillion of nonprime MBS, according to figures compiled by National Mortgage News. Fannie Mae and Freddie Mac were end buyers of some of these bonds.
BofA was not a major issuer of subprime MBS/ABS during this time, but in 2008 the bank purchased Countrywide Financial Corp., which not only ranked among the top five subprime lenders in the nation but owned an active broker/dealer that issued ABS. BofA also inherited Merrill Lynch – one of the largest subprime MBS issuers in the nation.
Fannie and Freddie did not issue their own subprime bonds but added liquidity to the A- to D market by purchasing parts of new deals from Wall Street firms such as Deutsche Bank, Greenwich Capital, Citicorp Securities, and others. Later on when these securities faltered, it led to huge losses at the GSEs.