Big US Banks Pressed on Sour Home Loans

Discussion in 'Wall St. News' started by ASusilovic, Sep 23, 2010.

  1. Big U.S. banks are facing legal pressure to make up for losses tied to pools of soured low-end mortgage loans.

    In the latest effort, a group of investors in 2,300 mortgage securities worth roughly $500 billion is seeking to force several banks that originated or are now servicing faulty subprime-mortgage loans to repurchase or modify them.

    The move follows other similar efforts. Bond and mortgage insurers, hard hit in the housing crisis, have filed lawsuits accusing lenders and banks of sticking them with flawed loans marred by poor underwriting and faulty appraisals.

    Federal Home Loan Banks in Pittsburgh, Seattle and San Francisco have sued Wall Street banks, seeking to force them to buy back mortgage-backed bonds. In July, the Federal Housing Finance Agency issued 64 subpoenas to obtain information about loans underpinning securities sold to mortgage giants Fannie Mae and Freddie Mac.

    The banks and lenders are fighting these efforts, saying they aren't responsible for the housing crash.

    And the outcome is far from certain and could depend on potentially contentious negotiations and litigation that could drag out for years.

    In any case, analysts say the efforts could force banks to disclose difficult-to-obtain information about the loans, such as how poorly they might have been originated or are being managed.

    That data could be used to force banks to repurchase as much as $133 billion in souring home loans, according to Compass Point Research & Trading, a Washington, D.C., boutique investment bank.

    The legal efforts focus on the contractual duties of lenders known as "representations and warranties," which can at times require them to repurchase loans or modify them so borrowers can keep paying monthly mortgage bills, which maintains value for mortgage securities tied to the loans.

    Representations and warranties ? Did anybody of those taking on these loans ask for "representations and warranties" ? No. Give me the money !