Major banks and others acquired during the financial crisis allegedly misrepresented the owner occupancy and loan-to-value ratios by sometimes as many as 50 percentage points or more on securities sold to Fannie Mae and Freddie Mac, according to the lawsuits the Federal Housing Finance Agency filed last week.
The FHFA, overseer of the government sponsored enterprises, filed suits against 17 major banks and scores of individual executives, alleging they knowingly falsified the quality of mortgage-backed securities sold to the government-sponsored enterprises. The lawsuit spans nearly $190 billion in MBS.
The FHFA checked the presale prospectus for the securities and conducted an analysis of 1,000 loans per bond. In securitizations of less than 1,000 mortgages the FHFA analyzed them all.
The agency first targeted the owner-occupancy rate reported to the GSEs. Borrowers who actually live in the home underlying the mortgage are more likely to remain current on the loan compared to investors who buy to rent.
It looked at whether or not the borrower's tax bill was sent to the property's address or a different one, whether the borrower claimed a tax exemption or whether the mailing address of the property was reflected in credit reports, tax or lien records.
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