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Tuesday, September 6, 2011

FHFA: Will lawsuit benifit taxpayer?

Fannie Mae and Freddie Mac: That went wellImage by qthrul via FlickrHoss Cents Free Financial Money Magazine wonders if the FHFA lawsuit against the 17 banks will be beneficial to the tax payer or will the lawsuit jeopardize the already shaky financial situation in the United States?
If the FHFA is successful and recovers $25 to $30 billion dollars, the bailout of Fannie Mae and Freddie Mac will of course be reduced but at what cost? The banks will have to take some action to recover these losses. How many bank employees will be let go?  Will the banks cut back on loans? Will other private investors initiate similar lawsuits? How many of these unknowns will it take to create investor concern and what effect will this have on the stock market? Will this cause an increase in unemployment?
The Hoss does not have answers to these questions but does wonder what the management of Fannie Mae and Freddie Mac were doing when they acquired these mortgages. Do they not scrutinize mortgage securities before, during and after purchase? If not why not? 
Lawsuits of this magnitude usually take years before they are resolved, so the big winners will be the lawyers not the middle or low income tax payer. They will still be left trying to feed their family, pay their mortgage and send their kids to college.

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