U.S. to have tough time in suits against 17 banks over mortgage bonds

The L.A. Times reports:

The government's latest attempt to hold large banks accountable for helping trigger the Great Recession could fall as flat as earlier efforts to punish Wall Street villains and compensate taxpayers for bailing out the financial industry.

Federal regulators, in landmark lawsuits this month, alleged that 17 large banks misled Fannie Mae and Freddie Mac on the safety and soundness of $200 billion worth of mortgage-backed securities sold to the two housing finance giants, sending them to the brink of bankruptcy and forcing the government to seize them.

Targets of other federal lawsuits and investigations have deflected such claims by arguing, for example, that the collapse of the housing market and job losses from the recession caused the loss in the value of mortgage-backed securities.

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."

Because Eric Holder would rather not go after the Fannie and Freddie crowd because of their political pull. No word on this one from the Congressional Black Caucus.