The suits are being filed now because regulators are concerned that it will be much harder to make claims after a three-year statute of limitations expires on Wednesday, the third (anniversary) of the federal takeover of Fannie Mae and Freddie Mac.
While the banks put together tens of billions of dollars in mortgage (securities) backed by risky loans, the Federal Housing Finance Agency is not seeking the total amount in (compensation) because some of the mortgages are still good and the investments still carry some value. In the UBS suit, the agency said it owned $4.5 billion worth of (mortgages), with losses totaling $900 million. Negotiations between the agency and UBS have yielded little progress.
The two mortgage giants acquired the securities in the years before the housing market (collapsed) as they expanded rapidly and looked for new investments that were seemingly safe. At issue in this case are so-called private-label securities that were backed by subprime and other risky loans but were rated as safe AAA investments by the ratings agencies.
In the years before 2007, “the market was so frothy then it was hard to find good quality loans to (securitize) and hold in your portfolio,” said David Felt, a lawyer who served as deputy general counsel of the finance agency until January 2010. “Fannie and Freddie thought they were taking AAA tranches, and like so many investors, they were surprised when they didn’t turn out to be such quality investments."