Deutsche Bank to Pay $1.9B to FHFA Over Mortgage-Backed Securities Sold to Freddie Mac and Fannie Mae

Deutsche Bank (DB) will pay the Federal Housing Finance Agency $1.9 billion to settle securities claims that it misled Freddie Mac and Fannie Mae about the quality of loans bundled with mortgage-backed securities. Of the settlement, Fannie will get $300 million and Freddie will get $1.6 billion. However, this MBS settlement does not resolve a separate lawsuit filed by the two government-sponsored enterprises against Deutsche Bank and other firms over losses from the alleged manipulation interest rate.

FHFA claims that prior to the financial crisis, a number of financial institutions misled the two mortgage companies about borrowers’ creditworthiness. It wants to get back the $196 million Freddie and Fannie paid to buy what were supposed to be private label MBS.

The regulator says that losses sustained by Freddie and Fannie were from MBS that came from financial institutions selling flawed securities due to home loans in the bonds being more high risk than what the banks said they were. Although Freddie and Fannie didn’t make the loans directly they bought the mortgages from banks and sold them as securities to investors and provided guarantees. When the housing market exploded the two of them bought securities that were privately issued as investments. They also became two of the biggest bond investors. Unfortunately, when the economic crisis eventually hit in 2008, Freddie and Fannie suffered huge mortgage losses. The US Treasury had to lend them over $150 billion just so they could keep running.

Now, since suing 18 banks and financial institutions two years ago, the government agency has collected $885 million from UBS (UBS) and over $5 billion from JPMorgan Chase (JPM). It also settled with General Electric, Ally Financial, and Citibank, although the terms have not been disclosed terms. Among those that have yet to settle are Bank of America (BAC) and its Countrywide Financial and Merrill Lynch (MER).

Just recently, U.S. District Judge Denise Cote of the United States District Court for the Southern District of New York issued a decision undercutting the potential defenses of banks against certain FHFA brought-state securities claims, which could up how much money the agency could get should the cases go to trial. It was earlier this year a federal appeals court turned down arguments that FHFA’s claims were submitted too late.

This year has been one in which numerous financial firms have had to settle for their actions that resulted in massive losses for so many investors and others during the financial crisis. The SSEK Partners Group continues to work hard to help many of these investors get back their money. Over the years we have helped many institutional investors and high net worth individuals with their arbitration claims and securities lawsuits.

Deutsche Bank to Pay $1.93 Billion to Resolve FHFA Claims, Wall Street Journal, December 20, 2013

Deutsche Bank to Pay $1.9 Billion Over Troubled Mortgage Securities, The New York Times, December 20, 2013

More Blog Posts:
Deutsche Bank, Royal Bank of Scotland Settle & Others for More than $2.3B with European Union Over Interbank Offered Rates, Institutional Investor Securities Blog, December 24, 2013

Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor, Institutional Investor Securities Blog, December 14, 2013

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013