U.S. Government Files Suit Against Financial Institutions for Mortgage Crisis.

The Federal Housing Finance Authority (FHFA), of the United States of America, filed suit on September 2, 2011, against some 17 multinational financial institutions that “do” or “did” business in that jurisdiction, and that were also involved in the sale, solicitation, or purchase of residential “private-label mortgage-backed securities” (The PLS Suit).[1]  The number of defendants may well be revised, upwards, before a resolution is made.  The FHFA stated reasons are its duty to act as Conservator for Fannie Mae (The Federal National Mortgage Association or “FNMA”) and Freddie Mac (The Federal Home Loan Mortgage Corporation or “FHLMC”), which together lost over $30 Billion due to the recent and severe problems with residential mortgages that have devastated the U.S. housing market,[2]and that many would say are directly responsible for the current economic malaise, numerous bankruptcies, the United States’ debt and deficit crises of confidence[3], and the ongoing epidemic of joblessness across America.[4]

Many Americans and non-Americans, alike, had been wondering when the U.S. government would take some firmer and more widespread enforcement action, beyond hearings, stimulus, and some targeted prosecutions, to get to the bottom of the problems and find and sanction those ultimately responsible.  However, these same financial institutions were not just sitting and waiting for the hammer to drop, as they were, reportedly, already well into serious negotiations with Attorneys General in multiple states, to deal with the problem, before it dealt with them.[5]

Banking and Securities regulation in the United States of America is governed by a complicated mix of state and federal legislation, and there is no double jeopardy (the bar against being tried twice for the same offence), if and when the same offence is called a different thing and has different elements of proof.  A similar, multi-state negotiation effort to find a comprehensive settlement for their potential civil and criminal liabilities – specifically under Medicare and Medicaid legislation, was made by the tobacco industry, (as U.S. criminal law is also a state by state affair, as well as a federal affair whenever a breach of Federal Criminal Law is involved), and with quite some success;[6] although there were several shortcomings, problems remain, and the model is not 100% transferable to the situation of all aggrieved parties in the mortgage industry meltdown.[7]

Summary.
It remains to be seen how and to what extent these financial institutions will succeed in their efforts to reach a negotiated solution; especially when many governments across America, and around the world, are suffering from deficits, lost jobs and tax revenues, and slow to no growth, and would eagerly jump to utilize a winning formula to dig into business sector pockets that have become and remain, significantly deeper than their own.

In the meantime, a lingering recession and lack of jobs means people will have to become and remain creative in keeping their skills relevant, finding paid local work, or migrating to those still remunerative industries and locations that are becoming ever harder to find. [8]

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Author:
Ekundayo George is a Lawyer and Strategic Consultant.  He is a published author in Environmental Law and Policy; licensed to practice law in multiple states of the United States of America, as well as Ontario, Canada; and has over a decade of solid legal experience in business law and counseling, diverse litigation, and regulatory practice.

Hyperlinks to external sites are provided as a courtesy and convenience, only, and no warranty is made or responsibility assumed for their content, accuracy, or availability.

This article does not constitute legal advice or create any lawyer-client relationship.

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[1] http://www.fhfa.gov/webfiles/22599/PLSLitigation_final_090211.pdf (FHFA Press Release of Friday, September 2, 2011).

[2] As a result of that crippling loss, both FNMA and FHLMC were taken over by the U.S. Federal Government and put into Conservatorship (protection) on September 7, 2008.

[3] http://www.guardian.co.uk/business/2011/jul/29/us-debt-crisis-questions-and-answers

(Backgrounder on the U.S.deficit crisis of confidence).

[4] http://www.cnbc.com/id/44370439  For the very first time since World War II, the United States economy created a net of “zero” jobs in an entire month.  This puts the month of August, 2011, into the record books; albeit for the wrong reasons.  Officially, 14 million people remain without jobs in America (both Americans and non-Americans, alike), at an unemployment rate of 9.1%.

[5] http://www.bbc.co.uk/news/business-14771936 (U.S. Federal Government to sue 17 financial institutions).

[6] http://finance.yahoo.com/news/Bank-Mortgage-Solution-Rooted-tsmf-3759939003.html?x=0 (Subprime mortgage industry parallels with the Tobacco industry settlement).

[7] Id.

[8] http://abcnews.go.com/Business/wireStory?id=13340293&singlePage=true (Europeans seek new lives in old colonies).