Could the FHFA’s Possible Lawsuit Against U.S. Banks Affect the Multi-Housing Industry?
- Sep 02, 2011
New York—The Federal Housing Finance Agency (“FHFA”), the federal agency that oversees Fannie Mae and Freddie Mac, is looking to file a lawsuit against more than a dozen big U.S. banks. The suit will accuse the banks of misrepresenting the quality of mortgage securities they sold before the housing crisis. The FHFA will be pursuing billions in reparation for the misleading mortgages.
Though similar to a recent lawsuit the FHFA filed against UBS, this lawsuit seeks reimbursement for Fannie Mae’s and Freddie Mac’s losses, as opposed to demanding that the banks buy back the original loans.
If this lawsuit, which would name such banks as Bank of America, JPMorgan Chase and Goldman Sachs, goes forward, it is possible the housing market could go through another recession.
“If you’re thinking individually about what the FHFA is tasked with, they’re doing what they’re supposed to do: conserving money, finding revenue for the institutions, recovering tax payer dollars,” Tim Rood, a former Fannie Mae employee and current partner at the Collingwood Group, tells MHN. “But then it’s a conflicting objective with those of, say, the FDIC, so you’re kind of pushing these guys [the banks] off a cliff.”
“If you don’t have any kind of housing or policy for these financial institutions then you just get this ambiguity, which breeds anxiety,” Rood adds.
Some worry about the effect on the multifamily industry if the FHFA lawsuit was to move forward.
“When you have a major federal agency filing the suit, it reduces the amount of capital for borrowers and the amount of lending it will do for firms in the multi-housing industry,” Jack Kern, managing director, Kern Investment Research LLC., tells MHN.
“It could push lending back to how it was in 2007 and 2008,” Kern says.
Though many agree that the FHFA is perfectly justified in suing the banks over misrepresenting mortgages, some feel that the time and money that will be expended in a lawsuit could be better spent elsewhere.
“[The settlement] doesn’t create one job, it doesn’t sell one house,” Rood says. “Why not use those funds to underwrite and finance mortgage programs that get people back to work—think rehab loans or construction loans—and clear some of this inventory.”
The FHFA declined to comment for this article.