Attorneys and corporate legal teams representing more than a dozen major mortgage lenders and investors in the United States rushed to Federal District Court in Manhattan during a cold Tuesday night to file a last-minute pleading in a case that could push Bank of America, JP Morgan Chase and other financial giants to shell out billions of dollars to settle investors' claims.
The precipitous motion filed by the banks comes after Judge Denise L. Cote threw out multiple requests by the banks to set the lawsuit aside. Some of the plaintiffs include the Federal Financial Housing Agency (FHFA), which oversees the troubled Fannie Mae and Freddie Mac mortgage investment entities that were bailed out by American taxpayers in 2008. The FHFA claims that several mortgage and investment banks pulled a fast one on Fannie and Freddie by selling them inferior mortgage securities.
Judge Cote has issued several rulings on the complex case against the banks, including limitations on discovery. After finding themselves unable to set aside the lawsuit, legal representatives for the banks are trying to convince the court that they need every single piece of evidence they can get their hands on to defend themselves. This discovery would include internal documents, electronic messages and depositions.
According to the New York Times, which obtained a copy of the filing, the banks claim that the limit on discovery is grossly inequitable. Previous court orders in this case have limited the amount of depositions the banks can present to 20. The banks want to interview more key figures at Fannie and Freddie as they build their defense. By comparison, Judge Cote has allowed plaintiff FHFA 400 depositions. The banks state that this situation is unfair since it creates and uneven playing field.
Major Settlements on the Line
The big banks are concerned that being forced to settle for the $200 billion that the FHFA is trying to recover on behalf of Fannie and Freddie will prompt other mortgage investors who feel they were duped to seek legal action. Nonetheless, various banks have already suffered major legal setbacks and have tapped into their cash reserves to settle considerable claims.
Citigroup recently agreed to settle a $730 million lawsuit by mortgage investors who claimed they were deceived by the financial giant. Citigroup's legal expenses in the wake of the collapse of the housing and mortgage markets recently stood at $1.3 billion. There is an even greater mortgage-backed securities case in the horizon, which involves Bank of America and its questionable acquisition of former subprime lender Countrywide.