November 28, 2012 / 10:05 PM / 8 years ago

U.S. judge says FHFA cases against banks can proceed

NEW YORK (Reuters) - A U.S. judge kept alive a federal regulator’s lawsuits against big banks including Credit Suisse Group AG CSGN.VX and Bank of America Corp (BAC.N) over allegations they misled Fannie Mae and Freddie Mac into purchasing billions of dollars worth of risky mortgage debt.

People walk next to a Bank of America's branch in New York October 24, 2012. REUTERS/Eduardo Munoz

The rulings, by U.S. District Judge Denise Cote in Manhattan, were the latest in a series of decisions allowing the Federal Housing Finance Agency to proceed with lawsuits against banks it blames for losses incurred by Fannie and Freddie.

The FHFA, which regulates Fannie and Freddie, last year sued 18 banks over the housing finance giants’ losses on more than $200 billion in mortgage-backed securities. The lawsuits accuse the banks of misrepresenting the quality of the loans underlying the securities and violating U.S. securities laws.

The banks have denied the regulator’s allegations and argued they should be dismissed. Among the arguments by the defendants is a contention that the lawsuits were filed after the statute of limitations had expired.

In a series of four brief orders, Cote allowed the FHFA lawsuits to move forward against several defendants, which also include HSBC Holdings Plc (HSBA.L) and Citigroup Inc (C.N). Representatives for those banks and for Bank of America and Credit Suisse, declined to comment.

In addition to these lawsuits, the banks face various investor lawsuits and government investigations into their roles in the sale of mortgage-backed securities. Those mortgage debt products were at the heart of the financial crisis following declines in housing prices and mounting foreclosures.

Cote has previously allowed FHFA lawsuits to move forward against defendants including Goldman Sachs Group Inc (GS.N), Deutsche Bank AG (DBKGn.DE), Bank of America’s Merrill Lynch unit, JPMorgan Chase & Co (JPM.N), Barclays Plc (BARC.L), and Morgan Stanley (MS.N).

Her newest decisions came two days after the 2nd U.S. Circuit Court of Appeals heard arguments on whether to reverse a May ruling by Cote that allowed a FHFA’s lawsuit against UBS AG UBSN.VX to move forward. UBS, which faces a January 2014 trial date, was the first bank the FHFA sued and the first lawsuit Cote had allowed to proceed.

A ruling for UBS reversing Cote’s decision would affect not just that lawsuit but the others, said Donald Hawthorne, a lawyer with Axxin Veltrop Harkrider who has been involved in suing financial companies over mortgage-backed securities.

“That would be the remaining potential stumbling block,” he said. “With that out of the way, she clearly is intending to pursue these cases vigorously.”

The four lawsuits Cote ruled on Wednesday targeted sales of $14.1 billion in mortgage-backed securities sponsored by Credit Suisse; $6.2 billion by HSBC; $6 billion by Bank of America, and $3.5 billion by Citigroup.

A day earlier, Cote largely allowed FHFA lawsuits against Nomura Holdings Inc (8604.T), First Horizon National Corp (FHN.N) and Societe Generale (SOGN.PA) to proceed as well. Spokesmen for Societe Generale and Nomura declined comment. First Horizon was not immediately available for comment.

The cases in the U.S. District Court, Southern District of New York are Federal Housing Finance Agency v. Credit Suisse Holdings (USA), Inc., 11-06200, Federal Housing Finance Agency v. Citigroup, Inc., 11-06196; Federal Housing Finance Agency v. Bank of America Corporation, 11-06195; Federal Housing Finance Agency v. HSBC North America Holdings Inc., 11-06189.

Reporting By Nate Raymond in New York; Editing by Martha Graybow and Steve Orlofsky

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