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Fannie Mae files suit against nine banks

Oct. 31, 2013 at 3:18 PM   |   Comments

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NEW YORK, Oct. 31 (UPI) -- The Federal National Mortgage Association, known as Fannie Mae, sued nine banks Thursday for manipulating a key benchmark lending rate.

The lawsuit, filed in Manhattan, asks for $800 million in to cover losses and a reward for punitive damages from the nine banks accused of manipulating the Libor, or London inter-bank offered rate, which is an average rate that banks charge each other for loans.

The Libor is used to set the rates for trillions of dollars in private and personal loans. To date four banks, all of them named in the Fannie Mae lawsuit, have settled allegations of Libor manipulating with regulators. In each of those cases, the banks have admitted to wrongdoing, The Wall Street Journal reported.

In the long run, Libor manipulation can affect trillions in loans. In the short run, however, it can affect specific transactions resulting in quick profits.

Fannie Mae, a government-sponsored bank that buys mortgage loans from other banks, says in the lawsuit that bank Libor submissions were noticeably askew on days in which it did a lot of business in interest-rate swaps, a derivative it uses to offset risks in mortgage investments.

The lawsuit says the banks worked together to manipulate the U.S. dollar Libor.

"Fannie Mae filed this action to recover losses it suffered as a result of the defendants' manipulation of Libor. We have a responsibility to be good stewards of our resources," a Fannie Mae spokesman said.

The Federal Home Loan Mortgage Corp., known as Freddie Mac, filed a lawsuit in March that charges more than a dozen banks with finance market manipulations.

The four banks that have settled charges of Libor manipulation with regulators include the Royal Bank of Scotland, Rabobank Group, UBS and Barclays.

© 2013 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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