Banks Hit with Mortgage Lawsuit

In a move that rocked share prices over the past weekend, said Thomson Reuters, the U.S. government announced a lawsuit against 17 banks across the world, including big players like Bank of America and Goldman Sachs, for the role it says they played in the real estate market collapse that preceded the most recent financial crisis.

The basic thrust of the lawsuit is that the entities named in the court filings allegedly falsely represented the quality of the mortgages they sold to homeowners and the mortgage-backed securities they sold to investors, saying that they were far more risky and worth much less than originally perceived, according to the Washington Post. The securities were then sold with registration statements and prospectuses that supposedly contained materially false or misleading statements and omissions, according to the Houston Chronicle.

Several banks defended themselves after the suit was filed, saying that the institutions which bought the securities claimed to understand the risks going in, reported the Financial Times.

Meanwhile, many of the same banks named in the federal lawsuit are the target of a probe by state attorneys general about the extent to which they utilized the practice known as "robo-signing," in which employees sign off on foreclosures without reviewing the documentation. These state authorities are close to offering the banks a deal that may include $10 billion to $25 billion in payments, in addition to possibly releasing them from certain legal liabilities, said the Financial Times. The banks, however, have reportedly balked at the offer and are looking for even broader legal protections than those that would be offered, according to United Press International.

New York Attorney General Eric Schneiderman was originally part of the group targeting the banks, though he was removed at the end of August for continuing to oppose the deal, said Reuters. Schneiderman voiced heavy opposition to any deal that would shield the banks from further litigation, despite heavy pressure to accept this condition as part of broader negotiations, reported the Times.