A Key Difference Between the FHA and DOJ Lawsuits

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Erik Gerding at the Conglomerate notes that the most interesting thing about the various federal and state lawsuits that have been recently brought against the banks in connection with their mortgage businesses is not how similar they are. It's how different they are.

The suits against 17 banks brought by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, is based on a mix of federal and state securities law claims. The suit against JPMorgan Chase by the New York Attorney General is mostly a Martin Act suit. The U.S. Attorney's suits against Wells Fargo and Bank of America are False Claims Act and Financial Institutions Reform, Recovery, and Enforcement Act-based.

It seems like every regulator has its own favorite legal theory of how to take action against these financial institutions. Or, perhaps, there is some kind of division of labor at work here. Each band of government agents brings a case on a different theory as a sort of test. Whatever works out can then be used by the rest of them.

One difference that hasn't received much attention yet is the different subject matters of the U.S. Attorney's suit against Bank of America and the FHFA Countrywide-BofA suit. Both have filed suits against Bank of America for conduct of Countrywide, the mortgage lender Bank of America acquired in the financial crisis. Both center around the mortgage business of Countrywide.

But the FHFA suit is based upon private label mortgage securities that were purchased as investment by Fannie Mae or Freddie Mac, while the U.S. Attorney suit is based on whole mortgages sold to Fannie Mae for securitization as GSE-MBS.

It's not at all clear to me why the U.S. Attorney would be interested in one type of mortgage transaction with Fannie and Freddie but not the other (or why the FHFA would be interested in the other but not the one). This might suggest that there won't be an effort to make Bank of America pay multiple claims on the same set of mortgages. But that's just my thoughtful opinion.

- by CNBC Senior Editor John Carney

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