KBW weighs in on the FHFA lawsuit filed Friday against the banks, saying it could cost the...

KBW weighs in on the FHFA lawsuit filed Friday against the banks, saying it could cost the mortgage-bond issuers nearly $60B. A much smaller settlement is more likely however, because the banks have a strong defense. Bank of America (BAC -3.3%), Citigroup (C -2.5%) and J.P. Morgan Chase (JPM -3.7%).

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  • Tom Armistead
    , contributor
    Comments (6228) | Send Message
    KBW thinks the banks have a powerful defense, in that Fannie and Fredddie were "sophisticated" buyers.


    KBW is missing the point. Suing under the Securites Act of 1933, there is nothing in the act about sophisticated buyers, intent to decieve, or justfiable reliance. It's just about misstatements of facts.


    FHFA when they took over the GSE's there was a clause in the law, which extended the statute of limitations on the 1933 act. Most other plaintiffs have to toll the statute by proving membership in one of the various class action suits brought timely.


    So everybody else has to go with fraud, which is harder to prove. But with the fruits of the evidence in the FHFA complaints, it will be much easier to get past early challenges and reach the discovery point.


    The banks were very active in concealing their misdeeds, refusing to make the files available for inspection, as servicers they frequently disregarded their duty to turn ineligible mortgages back, etc. So there is little reason to let them get the benefit of the statute of limitations, since they concealed their misdeeeds while the time ran out.
    6 Sep 2011, 02:05 PM Reply Like
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