US regulator set to sue big banks over sub-prime mortgage losses

The US government has sued 17 major banks for losses on mortgage-backed investments that has cost US taxpayers several billions of dollars.

The Federal Housing Finance Agency (FHFA) said in a statement that it filed lawsuits against 17 financial institutions yesterday, certain of their officers and various unaffiliated lead underwriters for alleged violations of federal securities laws and common law in the sale of residential private-label mortgage-backed securities (PLS) to Fannie Mae and Freddie Mac.

FHFA is conservator for mortgage giants Fannie Mae and Freddie Mac,  who lost more than $30 billon, partly because of their investments in risky sub-prime mortgages, loans provided to poorer US homebuyers who were vulnerable to interest rate hikes.

The two lenders together offered more than $5.7 trillion in funding for the US mortgage market and financial institutions. Both the firms were later bailed out by the US government, with the cost being borne by the US taxpayers, who have spent more than $140 billon to keep the firms afloat.

Those that have been sued include Goldman Sachs, Barclays, Bank of America, Deutsche Bank, and HSBC, Royal Bank of Scotland, Nomura, Citigroup, and Societe Generale.

The regulator, is keen to get the lawsuits filed before a three-year statute of limitations expires on Wednesday.