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The United States is expected to sue large banks over faulty loans.
The U.S. federal government agency in charge of overseeing mortgage companies Fannie Mae and Freddie Mac is likely to sue a dozen of the world's largest banks over mortgage securities, the New York Times reports.
The suits to be filed by the Federal Housing Finance Agency are expected to argue that the big banks misrepresented the quality of mortgage securities they assembled and sold, it states.
The banks targeted include Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank.
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"The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value," the Times states.
The suits are expected to be filed in federal court by early next week. They will seek billions of dollars in compensation.
The subprime mortgages, which they were known as, became one of the main causes of the mortgage crisis that disrupted the U.S. economy and continues to cause problems for the housing market, CBS News reports.
Daniel Indiviglio at the Atlantic said the lawsuits raise more questions, such as why now?
"The mortgage market's woes began to become clear in early 2007. If Fannie and Freddie were misled by the banks, what took them so long to realize it? Does it really take four-plus years to discover that lots of the mortgages going bad were misrepresented by the banks?"
The lawsuit will have an impact on the market as well.
A lawsuit “is an uncertainty that can go on for years -- that gets the market quite nervous,” Nader Naeimi, a Sydney-based strategist for AMP Capital Investors Ltd., told Bloomberg. “Bank of America, being at the epicenter of these problems, is going to get smashed.”