Feds Sue Big Banks Over Mortgages US accuses them of dodging due diligence as crisis fallout spreads By Mark Russell, Newser Staff Posted Sep 2, 2011 4:22 AM CDT Updated Sep 2, 2011 4:18 PM CDT 60 comments Comments A foreclosure sign hangs on a fence in front of a foreclosed home on April 6, 2011 in Richmond, California. (Getty Images) (Newser) – The Federal Housing Finance Agency—the agency behind Fannie Mae and Freddy Mac—has filed suit against more than a dozen big banks for their role in the mortgage meltdown mess. The feds, seeking billions in compensation, accuse the banks of misrepresenting the quality of mortgage securities, reports the New York Times. The suit accuses institutions including Bank of America, JPMorgan Chase, Goldman Sachs, and Deutsche Bank of failing to perform proper due diligence and missing evidence that borrowers’ incomes were inflated or falsified. Three years after the collapse of Lehman Brothers and the subprime-led financial crisis, the legal fallout is growing. The FHFA filed suit against UBS in July for $900 million, and 50 state attorneys general are closing a settlement with several of the largest mortgage servicers that could cost them $20 billion. The crackdown is not without risk. “While I believe that FHFA is acting responsibly in its role as conservator, I am afraid that we risk pushing these guys off of a cliff, and we’re going to have to bail out the banks again,” warned one consultant.