WASHINGTON (AP) -- A federal watchdog has found that government-controlled Fannie Mae and Freddie Mac may have lost more than $3 billion from big banks' alleged rigging of a key interest rate.
The staff of the inspector general for the Federal Housing Finance Agency, which oversees the two mortgage giants, gave the estimate in an internal memo obtained by The Associated Press. It recommended that the FHFA consider suing banks over the LIBOR rate.
Switzerland's largest bank, UBS, agreed Wednesday to pay $1.5 billion in fines, becoming the second bank fined for trying to manipulate LIBOR. The rate is used to price trillions of dollars in contracts including mortgages and credit cards.
LIBOR, or the London Interbank Offered Rate, is set daily using information that banks provide.
The memo says Fannie and Freddie sustained the losses on $1 trillion in mortgage securities and other investments linked to the key rate. The Wall Street Journal first reported on the memo Wednesday.
Taxpayers so far have paid about $170 billion to rescue Fannie and Freddie, which suffered huge losses from risky mortgages and were bailed out by the government in September 2008 at the onset of the financial crisis.
Fannie and Freddie together own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans.
Legal action against banks by the FHFA on Fannie and Freddie's behalf would add to a flurry of lawsuits filed by cities and municipal agencies in the U.S. against some of the banks that set the LIBOR rate. The cities and agencies are seeking damages for losses they say they suffered as a result of an artificially low rate, because they hold bonds and other investments whose value is pegged to LIBOR.
The FHFA said in a statement Wednesday that it hasn't determined specific losses from LIBOR for the two companies and hasn't decided whether to pursue legal action against the banks.
"We continue to evaluate issues associated with LIBOR and monitor LIBOR-related developments," the agency's statement said.
Spokesmen for Fannie and Freddie declined to comment.
The LIBOR scandal is likely to make headlines again in coming weeks and months. Other big global banks in several countries also are being investigated for rigging the rate and are expected to be fined.