FDIC sues banks over mortgage securities

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NEW YORK, Aug. 11 (UPI) -- Federal regulators sued 11 major banks for allegedly swindling Colonial Bank by selling the Alabama lender $388 million in mortgage-backed securities.

The defendants, including Wells Fargo, Citigroup and J.P. Morgan Chase, were accused by the Federal Deposit Insurance Corp. of making misleading statements about the strength of the mortgage borrowers and property appraisals.

Colonial Bank went under in 2009, a collapse that will cost the FDIC an estimated $2.8 billion. It was the largest since Washington Mutual the previous year.

The Wall Street Journal said the FDIC suit filed in Manhattan was similar to a suit filed last fall by the Federal Housing Finance Agency, the agency that oversees the Fannie Mae and Freddie Mac, over the purchases of $196 billion in mortgage securities in 2005-2008.

Most of the banks sued by the FDIC denied immediate comment, although Wells Fargo said the charges were "entirely without merit" and would be contested in court.