The housing regulators accused the bank for willingly selling the subprime loans packaged into securities to Fannie Mae (FNMA) and Freddie Mac (FMCC), inspite of being aware that the assets were toxic in nature.
In 2011, FHFA filed a total of 18 lawsuits against financial organizations involving $200bn claim of residential mortgage backed securities (RMBS) sold between 2005 and 2007 to Fannie and Freddie by giving materially false statements about the quality of mortgages.
Fannie Mae and Freddie Mac collapsed during the financial crisis of 2008, and were subsequently injected with nearly $187.5bn by the US government to keep them running. Currently, both are being managed by the FHFA.
The lawsuits filed in the federal court in Manhattan alleged that the faulty RMBS was marketed by Washington Mutual and Bear Stearns, which were later purchased by JP Morgan during the financial crisis.
The US based financial services firm is facing a string of legal cases, including infamous London Whale trading scandal, which forced the lender to swallow $6.2bn losses.
Over the last two years, it has incurred nearly $10bn in legal cases and at the end of June 2013, it raised its estimate of losses to more than of its reserves to $6.8bn from $6bn at the end of March this year.
FHFA has already settled the case with Citi bank for $3.5bn agreement, UBS Americas for $885m settlement and seems to ink a similar settlement with HSBC involving a penalty of $1.6bn.
