US ‘to sue major banks over mortgages’

The suits will also argue the banks missed evidence that borrowers’ incomes were inflated or falsified [EPA]

The United States’ mortgage regulator is to sue more than a dozen banks for misrepresenting home loan securities at the height of the housing bubble, according to US media reports.

The lawsuits, expected to be filed by the Federal Housing Finance Agency (FHFA) in coming days in a federal court, will seek billions of dollars in compensation, the New York Times newspaper reported on Thursday.

It said the suits would target major banks including Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank.

The newspaper, citing three unnamed sources it said had been briefed on the matter, reported that the lawsuits stemmed from subpoenas the finance agency issued to banks a year ago.

State attorneys general, as well as federal officials, are pressing the banks to pay at least $20bn in the case, with much of the money earmarked to reduce the mortgages of homeowners facing foreclosure.

The paper said the suits would argue that the banks, which assembled the mortgages and marketed them as securities to investors, had failed to perform the due diligence required under securities law.

The suits would also argue that the banks 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 reported.

Mortgage giants Fannie Mae and Freddie Mac, which are overseen by the FHFA, lost more than $30bn, in part as a result of the deals, losses that were borne mostly by taxpayers.

The lawsuits follow a July suit against UBS, another major mortgage securitiser, seeking to recover at least $900m. Sources with knowledge of the case said the new litigation would be similar in scope, the Times reported.

Bank of America, Goldman Sachs and JPMorgan had all declined to comment, the Times said. Frank Kelly, a spokesman for Deutsche Bank, said: “We can’t comment on a suit that we haven’t seen and hasn’t been filed yet.”