Monday
September 1, 2014

Gov’t Warns Banks: More Lawsuits Coming

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Gov’t Warns Banks: More Lawsuits Coming

A task force of federal and state investigators issued a warning to banks on Tuesday that more lawsuits are coming from alleged fraud that occurred with the selling of mortgage-backed securities with home loans during the financial crisis. 

This week, President Obama’s Residential Mortgage Backed Securities working group took its first action against a bank, filing a lawsuit against Bear Stearns, owned by JPMorgan Chase. Federal investigators allege that Bear Stearns issued risky mortgage-backed securities in 2006 and 2007, which resulted in $22.5 billion in losses to investors.

The pending lawsuits against banks are centered on the selling of mortgage-backed securities, which are financial products of home loans that get pooled together and sold to investors. When home prices fell in the aftermath of the financial crisis, many of those securities drastically lost value as a soaring number of home owners faced foreclosure. 

“Investigations since then have revealed that many banks were aware of the risks associated with the housing bubble but continued to package poor quality home loans and sell them, collecting hefty fees along the way,” CNNMoney reports. 

Many of the bank giants who were saddled with the bad securities received government bailouts at the time.

The government and investors have up to five years to file fraud lawsuits related to the sales of mortgage-backed securities. 

"As the go-go years for many alleged violations were 2006 and 2007, the ability to bring more of these suits is rapidly disappearing," Jaret Seiberg, a financial services analyst with Guggenheim Washington Research Group, said in a note for investors.

Source: “Government: We Plan to Sue More Banks,” CNNMoney (Oct. 2, 2012)

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