Libor manipulation cost Fannie Mae and Freddie Mac more than $3 billion, according to an estimate by a government watchdog, who recommends the government-owned mortgage giants sue the big banks.

That estimate and legal advice were made in a private report by Steve Linick, the inspector general for the Federal Housing Finance Agency, the regulator for Fannie and Freddie, which were taken over by the U.S. government during the financial crisis. The Wall Street Journal first reported the watchdog's analysis on Wednesday.

The report, a copy of which was obtained by the Huffington Post, was in a memorandum prepared by the FHFA watchdog's staff and delivered to FHFA Acting Director Edward DeMarco on Nov. 2. The FHFA did not immediately respond to a request for comment. According to the WSJ, the FHFA has told Linick in a recent letter that it was "exploring potential legal options."

“We conducted a preliminary analysis of potential Libor-related losses at Fannie and Freddie and shared that with FHFA, recommending that they conduct a thorough review of the issue," Kristine Belisle, a spokeswoman for the FHFA inspector general, said in an email. "FHFA agreed to study the matter further.”

More than a dozen banks in the U.S. and Europe are under investigation for allegedly manipulating a key short-term interest rate known as Libor, which influences borrowing costs throughout the global economy. Swiss bank UBS on Wednesday agreed to pay $1.5 billion to settle charges that its traders manipulated Libor over several years. The bank's Japanese unit pleaded guilty to a crime -- a rarity for a bank -- and two of its former traders have also been hit with federal criminal charges. Earlier this year U.K. bank Barclays Capital agreed to pay about $450 million to settle Libor charges.

One of the early defenses raised in the Libor scandal was that interest rates were often manipulated lower during the crisis, a boon to borrowers. What was the harm in that, the defenders asked? But Barclays and UBS traders -- and likely traders at many other banks -- also manipulated interest rates higher, to help bolster profits in derivatives trades.

Higher Libor rates might have hit Fannie and Freddie with higher borrowing costs, but the inspector general's analysis only covers the period during and after the financial crisis, in which banks were mainly manipulating Libor lower to hide their own troubled finances.

According to the inspector general's report, Fannie and Freddie may have been cheated out of interest-rate payments on floating-rate bonds and interest-rate swaps by the lower Libor rates. Lower Libor rates during that period may have helped Fannie and Freddie in other ways, offsetting some of those losses, according to the report. But that was apparently not enough to help Fannie and Freddie avoid losses.

Libor-setting banks have already been sued by their trading partners and customers alleging billions of dollars in losses. And Wall Street analysts have tried to estimate just how big the legal liability could be for the banks. But Linick's analysis marks the first semi-official estimate of actual damages caused by the Libor scandal.

Of course, $3 billion is not a great deal of money, in the grand scheme of things. JPMorgan Chase's "London Whale" trading debacle cost it twice that much.

But it's not nothing. It will be interesting to see if the U.S. government, which has avowed a fear of prosecuting banks and bankers, but has been more willing to extract large fines, will try to get that $3 billion back for the taxpayers who own Fannie and Freddie.

This post has been updated with additional details throughout.

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