The Federal Home Loan Bank of Chicago is suing B of A and others

Federal Home Loan Bank of Chicago sues B of A, others

The Federal Home Loan Bank of Chicago has sued several of the nation’s largest banks, including its biggest shareholder, Bank of America Corp., alleging that their failure to disclose lax mortgage underwriting standards led the Home Loan Bank to suffer losses after purchasing poor-quality mortgage-backed securities from them.

The Home Loan Bank’s lawsuit, filed in Cook County Circuit Court, asks the court to void the sales of the securities and direct the banks to reimburse the Home Loan Bank plus 10% annual interest, according to Bloomberg News.

The $88-billion-asset Federal Home Loan Bank of Chicago is one of 12 federally chartered wholesale banks around the country that make low-interest loans to their member banks and in the past have purchased mortgages originated by their member banks. With one of the biggest mortgage-buying programs of any of the 12 wholesale banks, the Chicago institution has struggled through the recession. It’s under orders from its federal regulator not to pay dividends to its members and is redeeming their shares, which don’t trade, only under very limited circumstances.

As of June 30, the Federal Home Loan Bank of Chicago reported having $3.4 billion in mortgage-backed securities purchased from private banks and has recognized $800 million in losses on that portfolio.

http://www.chicagobusiness.com/article/20101015/NEWS01/101019921/federal-home-loan-bank-of-chicago-sues-b-of-a-others

I think the unraveling has begun in earnest.