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Additional Bank Settlements over Mortgage Backed Securities On the Way

Additional Bank Settlements over Mortgage Backed Securities On the Way

As many as nine additional banks are in line for the next round of billion-dollar payments related to soured mortgages as federal and state officials prepare their next set of cases.  The U.S. Justice Department and state officials, which already agreed to approximately$37 billion in payments from the largest U.S. banks, are now focusing on additional U.S. and European banks. Settlements with

Goldman Sachs Group and Morgan Stanley could be finalized by late June according to sources familiar with the matters.

The settlements involve the marketing and sale of securities backed by residential mortgages that plunged in value during the financial crisis of 2008. The targeted banks are expected to pay between a few hundred million dollars to $2 billion or $3 billion each, depending on their size and the role they played in securitizing the mortgage backed paper.  The negotiations are in the early stages and the deals are expected to be worked out individually as opposed to a group.

The new parade would follow the pacts relating to residential mortgage-backed securities that the nation’s three largest banks by assets – JP Morgan Chase

& Co.,

Citigroup, Inc.


Bank of America Corp. – paid in later 2013 and the summer of 2014.  In those cases, the government alleged the banks sold questionable and risky mortgage backed securities to investors without fully disclosing their quality.

Once this latest round of settlements is complete, observer believe the Justice Department could pursue settlements with large U.S. regional banks, depending on the amount of mortgage-related securities they underwrote and sold. While regional banks have been large players in mortgages, the trading desks of the largest banks were the ones that sliced and diced mortgages (called tranches) and sold them to investors around the world.  When the housing market collapsed, the lawsuits followed.

Other banks expected to settle in coming months include

Barclays BCSCredit Suisse AG,

Deutsche Bank, HSBC Holdings PLC, Royal Bank of Scotland,PLC (RBS), UBS



Wells Fargo

& Co.  Most of the banks have already disclosed the DOJ investigation of their mortgage related businesses.