January 2, 2014

NOT A BUBBLE, JUST A MATTER OF FRAUD:

Fannie-Freddie Settlement Tab in 2013: $7.9 Billion (NICK TIMIRAOS, Jan. 2, 2014, WSJ)

The FHFA, which controls government-backed Fannie and Freddie, sued 18 financial institutions in 2011 seeking unspecified damages on about $200 billion of mortgage investments. It alleged that financial institutions misled Fannie and Freddie about the quality of loans underlying mortgage bonds sold to the mortgage-finance giants. [...]

Legal analysts expect the remaining cases to be settled before going to court because of a series of legal rulings that have largely undercut banks' efforts to narrow their potential liability.

While Fannie and Freddie don't make loans directly, they support housing markets by buying mortgages from banks and then selling them to investors as securities, providing guarantees. During the housing boom, Fannie and Freddie augmented their role in the housing market by purchasing privately issued securities as investments.

The U.S. Treasury in 2008 rescued Fannie and Freddie as mortgage losses mounted. All told, the two received more than $150 billion in infusions to stay afloat. They have become highly profitable over the past year and are close to having paid as much to the U.S. in dividends as the government was forced to inject to stabilize the firms.
Posted by at January 2, 2014 4:47 PM
  
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