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US Banks Face Lawsuits Over Risky Mortgages

Bank of America booth at the Pacific Coast Builders Conference in San Francisco, California, June 23, 2011

A U.S. newspaper says the federal government is set to file lawsuits against more than 12 massive financial institutions for misrepresenting the quality of mortgage-backed securities that played a role in the 2008 financial crisis.

The New York Times says the Federal Housing Finance Agency is taking action against Bank of America, JPMorgan Chase and Goldman Sachs and others.

The banks bundled mortgages and sold them to investors, including government-backed mortgage companies Fannie Mae and Freddie Mac during the housing bubble.

The Times says the FHFA will argue the banks missed evidence the homeowners' incomes were inflated or falsified. When those homeowners' were unable to pay their mortgages, the securities lost value.

Fannie Mae and Freddie Mac lost more than $30 billion combined on the securities. The Times reports the FHFA is seeking repayment from the banks for those losses.

The FHFA was created in 2008 to oversee the two mortgage giants. The agency is filing the lawsuits now because a deadline for it to file any claims runs out next Tuesday.

Last month, insurance giant American International Group filed a $10 billion lawsuit against Bank of America and two of its subsidiaries, Countrywide Financial and Merrill Lynch. AIG alleges it was also misled about the real value of the mortgage-backed securities it bought.

In addition to the impending lawsuits, the big banks are also negotiating a $20 billion settlement by attorneys general in all 50 states to address their practice of offering high-risk loans to home buyers who would not have otherwise qualified for a conventional mortgage.