U.S. authorities have started legal proceedings against 17 large U.S. banks for losses on subprime mortgage derivative contracts totaling 200 billion dollars, reports Reuters. The dispute that will be argued now in court has at stake nominating the guilty party that will bear the losses caused by the collapse of U.S. real estate market in 2008.
The legal action was initiated Friday by the Federal Housing Finance Agency, the institution that oversees the two mortgage giants Fannie Mae and Freddie Mac. Authorities accuse the banks of wrong representation of the products derived from subprime loans (loans to people with doubtful credit rate, but at higher costs, loans that have been packed in investment derivatives, considered by the market as “premium” even though they had a high risk degree – Ed.).
Bank of America, Countrywide, Merrill Lynch, Barclays, Citigroup, Goldman Sachs Group, JPMorgan Chase & Co., Royal Bank of Scotland are included in the group of 17 banks that, according to investigators, should not have placed in derivatives products that do not meet the necessary investment criteria.
Most banks involved were not available for comment, but critics say that the authorities do nothing but decline responsibility for the disastrous situation of Fannie Mae and Freddie Mac due to the housing market collapse.
Analysts polled by Reuters on legal issues argue that action already has a predictable result: a settlement outside the courtroom, the banks will agree to pay a sum of money and in return the U.S. authorities will be able to reduce the loss of two giants mortgage companies.