Mass Mortgage Fraud Settlements Upcoming

Nine banks are nearing agreements to resolve the U.S. Government’s investigation into their sales of mortgage bonds prior to or during the financial crisis. Morgan Stanley has previously said that it agreed to pay $2.6 billion to resolve the matter. Goldman Sachs is now discussing a similarly sized payment of $2 to $3 billion to end the probe.

Other banks that are expected to settle in the near future are Barclays, Credit Suisse, Deutsche Bank, HSBC Holdings, Royal Bank of Scotland (RBS), UBS and Wells Fargo. Bloomberg says they are “set to settle.”

The investigations relate to suspected violations of federal law related to the sale of mortgage-backed securities. JPMorgan Chase, Bank of America and Citigroup resolved the allegations against them for more than $35 billion in cash and consumer relief. The upcoming settlements involving mortgage fraud are not expected to reach as high, with a range in amounts from a few hundred million to a few billion dollars.

The past settlements have charged the banks with a variety of violations, including penalties for violating the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) and the False Claims Act. Both FIRREA and the FCA authorize payments for whistleblowers.

The U.S. Federal Housing Finance Agency (FHFA) also has an outstanding lawsuit against RBS on behalf of Fannie Mae and Freddie Mac. The estimates are that it could pay a settlement of up to $4.5 billion if it loses its challenge concerning the statute of limitations. RBS has contended that the 2011 lawsuit was filed too late. In total, FHFA has collected more than $19 billion from 16 banks.

In other news, the New York Post announced that there is a new investigation into the fraudulent manipulation of the $12.5 trillion Treasuries market. According to the New York Post, the investigation into the setting of interest rates at Treasury auctions is in the early stages and the government has requested information for three of the twenty two financial institutions acting as primary government debt dealers. We haven’t seen confirmation of the investigation by any other paper yet.