After more than two years of filing lawsuits against 18 major financial institutions, the Federal Housing Finance Agency (FHFA) has recovered approximately $8 billion for taxpayers. While filing the lawsuit in Sep 2011, the FHFA had accused the banks of violating several federal securities laws and common law while selling $200 billion worth of residential mortgage-backed securities (RMBS) to Fannie Mae (FNMA) and Freddie Mac (FMCC) in 2005–2007.
The financial institutions that have settled these charges are JPMorgan Chase & Co. (JPM), General Electric Company (GE), Citigroup Inc. (C), UBS AG (UBS), Deutsche Bank AG (DB) and Ally Financial Inc. Of these, the biggest amount was recovered from JPMorgan ($4.0 billion), followed by Deutsche Bank ($1.9 billion), UBS ($885 million), Ally Financial ($475 million), Citigroup ($250 million) and General Electric ($6.3 million).
The financial terms of the settlement with Citigroup, General Electric and Ally Financial were not revealed earlier as the FHFA was in the process of negotiating the settlement terms with other financial institutions.
Additionally, Wells Fargo & Company (WFC), which was not part of the above-mentioned litigation, agreed to settle similar charges for $335.2 million in Nov 2013. Wells Fargo was able to evade the lawsuit as its lawyers were already in negotiation with the FHFA regarding a settlement.
The litigation is still pending against 12 banks including Bank of America Corp. (BAC), Morgan Stanley (MS), Barclays PLC, The Royal Bank of Scotland Group, PLC, The Goldman Sachs Group, Inc. (GS) and Nomura Holdings, Inc. (NMR).
The next in line to settle the charges is expected to be BofA as a federal court in Manhattan will be hearing the case in June. The FHFA is seeking roughly $6 billion from BofA along with Countrywide Financial Corp. and Merrill Lynch & Co. (these two acquired in 2008) to settle the charges.
Such settlements are expected to aid in further revival of the economy. Moreover, such moves by banks demonstrate their aim to resolve all mortgage-related issues, thereby reducing costs over the upcoming period. Alongside, these strategic decisions are likely to bode well for banks and boost investors’ confidence as well.
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