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September 6, 2011 > Reports: US to sue big banks over risky mortgages

Reports: US to sue big banks over risky mortgages

Submitted By AP Wire Service

NEW YORK (AP), Sep 02 - The U.S. government is planning to sue some of the country's largest banks over mortgage-backed securities they sold that lost value in the housing market collapse, according to published reports Friday.

The reports say the government would seek to be compensated for billions of dollars in losses. The government says the banks misrepresented the quality of the mortgage securities. The reports cited people that were not identified.

The New York Times and The Wall Street Journal say the Federal Housing Finance Agency, which oversees mortgage buyers Fannie Mae and Freddie Mac, could file a lawsuit within days.

The reports say securities that were backed by subprime and other risky loans but were deemed safe investments by ratings agencies are the ones at issue in this case.

The lawsuits come as a result of past claims from the FHFA. Last year, the FHFA issued 64 subpoenas to various entities seeking documents related to mortgage-backed securities in which the Fannie and Freddie had invested.

The agency said at the time the documents would enable it to determine whether the banks and other financial entities were liable for losses they had suffered from their investments. FHFA said it expected to recoup funds, which would be used to offset payments made by the U.S. Treasury to Fannie and Freddie.

Fannie Mae and Freddie Mac are viewed as critical to the mortgage market, because they buy mortgages loans and mortgage securities issued by the lenders.

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