U.S. SUES 17 LENDERS

NEW YORK

- The government yesterday sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.

Among those targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., and Goldman Sachs Group Inc. Large European banks including the Royal Bank of Scotland, Barclays Bank and Credit Suisse were also sued.

The lawsuits were filed by the Federal Housing Finance Agency. It oversees Fannie and Freddie, the two agencies that buy mortgage loans and mortgage securities issued by the lenders.

The total price tag for the mortgage-backed securities sold to Fannie and Freddie by the firms named in the lawsuits: $196 billion.

The government didn't say how much it is seeking in damages.

The government action is a big blow to the banks, many of which have seen their stock prices fall to levels not seen since the financial crisis in 2008 and 2009. Until now, the stocks have been undermined mostly by unrelated worries about the U.S. and European economies.

It is particularly damaging to Bank of America, which bought Countrywide Financial Corp. in 2008 and Merrill Lynch in 2009. All three are being separately sued by the government for mortgage-backed security sales totaling $57.5 billion.

Ken Thomas, a Miami-based banking consultant and economist, said he expects the banks to settle soon with the government.

"This will be nothing but a distraction to them, and the quicker you settle something like this the better," he said.