US authorities to sue big banks over sub-prime crisis

The FHFA claims banks failed to notice borrowers were taking on mortgages they could not afford. Photograph: Getty Images

US authorities are preparing to sue more than a dozen big banks over claims they misrepresented the quality of mortgages sold during the 2006-7 housing bubble.

The US Federal Housing Finance Agency (FHFA), which is overseeing the remains of failed mortgage giants Fannie Mae and Freddie Mac, is reportedly planning to argue that America's biggest banks failed to check the health of mortgages before they sold them on to investors. The collapse of hundreds of thousands of sub-prime mortgages triggered the 2008 credit crisis and the collapse of Fannie and Freddie.

The New York Times said the FHFA is expected to file the lawsuit against the banks, including Bank of America, JP Morgan, Goldman Sachs and Deutsche Bank, as early as Friday. The agency, which is seeking billions of dollars in compensation, claims the banks failed to notice that borrowers were taking on mortgages that they could not afford.

The FHFA lawsuit, which follows a subpoena issued to the banks last year, demands that the banks pay compensation to cover some of the $30bn (£18.5bn) Fannie and Freddie lost on mortgage-backed securities. Most of Fannie and Freddie's losses were borne by US taxpayers after the government was forced to step in and bailout the pair to the tune of $141bn.

It follows a similar $900m lawsuit filed against Swiss bank UBS in July. At the time UBS said it would "vigorously" defend all charges brought against it.

In total the FHFA issued 64 subpoenas to the issuers and servicers of mortgage-backed securities last year. Last week the agency's director, Edward DeMarco, who declined to discuss the pending lawsuit, said there were "more to come". The banks declined to comment to the New York Times.

Action by the FHFA comes as the US Federal Reserve announced a formal enforcement action against Goldman Sachs "to address a pattern of misconduct and negligence relating to deficient practices" in its handling of mortgage loans. The Fed said Goldman will be legally required to compensate any homeowners that were found to have been financially harmed by the alleged misconduct. It did not speculate on the size of the potential compensation claims.

The Fed's action is the latest step in the US government's investigation of "robo-signing" – in which bank employees signed foreclosure documents without reviewing case files as required by law. The Fed said employees at Goldman's Litton Loan Servicing unit engaged in robo-signing and took actions in foreclosure and bankruptcy cases "without always confirming that documentation of ownership was in order".

Separately, the New York State Banking Department announced that Goldman had agreed to write off $53m of the outstanding debts on about 150 mortgages it owned in New York. Accepting the writedown was a condition for allowing Goldman to sell Litton to Ocwen Financial in a $260m deal late on Thursday.