The federal agency managing Fannie Mae and Freddie Mac are suing 17 banks for selling toxic mortgage-backed bonds.
Fannie and Freddie have been buying subprime mortgages for more than a decade. They were forced to by their political supervisors who wanted more mortgages for certain politically protected minorities with such bad credit that they would not normally have access to mortgages.
The big banks, though, might have a more powerful defense: Fannie Mae and Freddie Mac were no novices at investment decisions.
The two companies were major players in the subprime housing boom through the mortgage-backed securities market they helped create, and they should have known better than anyone that many of the loans behind those securities were toxic, some analysts and legal experts said.
“I can’t think of two more sophisticated clients who were in a better position to do the due diligence on these investments,” said Andrew Stoltmann, a Chicago investors’ lawyer specializing in securities lawsuits. “For them to claim they were misled in some form or fashion, I think, is an extremely difficult legal argument to make.”
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