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MReport_July2015

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62 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET Department local eDition local eDition nomura Found liable for selling toxic mortgage- Backed securities to gses After duking it out with the fhfA for weeks, the holding compAny And its co-defendAnt will hAve to pAy up. NEW YORK // The nearly two- month-long court battle between the Federal Housing Finance Agency (FHFA) and Nomura Holdings came to an end in May when a federal judge found the bank liable for selling shoddy mortgages to Fannie Mae and Freddie Mac prior to the 2008 financial crisis. In a 361-page ruling, Judge Denise Cote said that the magnitude with which Nomura and co-defendant Royal Bank of Scotland deceived the GSEs regarding the mortgage-backed securities was "enormous." "FHFA is pleased with the court's decision and we are re- viewing the various elements of this important ruling. It is clear the court found that the facts presented by FHFA were con- vincing," FHFA General Counsel Alfred Pollard said. "FHFA looks forward to submitting proposed damages calculated under the formulae applied in the court's opinion." Attorneys for Nomura were not immediately available for comment. The non-jury trial began March 16 in the U.S. District Court in the Southern District of New York in Manhattan with Cote presiding. Nomura and RBS are the first two financial institu- tions out of 18 sued by the FHFA in 2011 that failed to reach a settlement and took the case to trial. FHFA sued the 18 institu- tions to recoup U.S. taxpayer costs following the government's $188 billion bailout of Fannie Mae and Freddie Mac in 2008, af- ter which the government seized control of both Enterprises. FHFA is seeking $1.1 billion in damages. The agency alleges it suffered monumental losses when the sponsor of the mort- gage-backed securities, Nomura, and the securities' underwriter, RBS, did not follow underwrit- ing guidelines on 68 percent of a sample of a bundle of securi- ties backing more than $2 billion worth of mortgages sold to the GSEs prior to the financial crisis of 2008. An attorney for Nomura claimed during the trial that the losses incurred by the FHFA were due to macroeconomic fac- tors and not false or misleading statements by the banks, while an attorney for FHFA accused Nomura and RBS of "colossal incompetence" and "deceit" with regards to the documents for the mortgage-backed securities they sold to the GSEs. The FHFA has a separate suit pending against RBS in the U.S. District Court in Connecticut over the selling of about $32 billion worth of faulty mortgage- backed securities to Fannie Mae and Freddie Mac before the crisis. The bank had set aside about $3 billion for a possible settlement, but reports surfaced that the FHFA might ask for as much as $7.7 billion. The case should go to trial sometime next year if a settlement is not reached. In June 2014, RBS agreed to pay $99.5 million to settle a separate FHFA suit claiming that the bank sold more than $2 billion worth of faulty mortgage- backed securities to Fannie Mae and Freddie Mac between 2005 and 2007, the years of the "hous- ing bubble" in the U.S. lawsuits against U.s. Bancorp and Bank of america dismissed district judge rApped her gAvel in fAvor of the bAnking giAnts in three different clAims Alleging sloppy mortgAge bAnking prActices. NEW YORK // A federal judge dismissed claims in lawsuits against U.S. Bancorp and Bank of America accusing the two banks of failing in their duties as trustees for residential mortgage- backed securities that were alleg- edly found to have defects after they were sold, causing billions of dollars in losses to investors. U.S. District Judge Katherine Forrest in Manhattan dismissed the claims against the two banks in three separate deci- sions. In the first decision, a group of institutional investors, BlackRock Inc., Allianz SE's Pacific Investment Management Co., and TIAA-CREF sued U.S. Bancorp, claiming the bank was responsible for 843 toxic mort- gage-backed securities totaling about $778 billion in collateral. Forrest ruled that the claims were not pleaded correctly on 33 of the trusts and that the remaining 810 trusts did not fall under her jurisdiction. In the second decision, Forrest dismissed a claim from the National Credit Union Administration, ruling that the NCUA lacked standing to sue the two banks because the certifi- cates for 74 trusts, which were purchased by five corporate credit unions that later failed, had been re-securitized. Likewise, Forrest ruled that investors based in Ireland and the Cayman Islands lacked standing to sue the two banks. All of the plaintiffs were given a chance to amend their complaints. An attorney for BlackRock, Allianz, and TIAA-CREF, when reached by email, declined to com- ment on the judge's decision. Bank of America spokesman Lawrence Grayson declined to comment, and U.S. Bancorp spokesman Dana Ripley told DS News, "We are pleased with the rulings." This was the second victory for Bank of America in court in less than a week regarding its mortgage banking practices. The previous week, a federal judge threw out a suit filed by the City of Los Angeles that claimed the bank engaged in discrimina- tory lending practices that led to massive defaults, foreclosures, and eventually blight in Los Angeles neighborhoods. A settlement in which Bank of America and U.S. Bancorp agreed to pay $69 million to Washington Mutual in a similar case in which the two banks were accused of failing in their duties as trustees for mortgage- backed securities was approved by Forrest in March. Just as in the three cases that were recently dismissed, Washington Mutual alleged that breaches on the part of the two banks led to massive losses when the finan- cial crisis hit. SECONDARY MARKET

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