Japanese bank first to fight back against FHFA shoddy MBS claims

by MPA16 Mar 2015
It took nearly four years, but this morning Japanese bank Nomura Holdings Inc. and the Federal Housing Financing Agency (FHFA) will go to trial over claims it sold shoddy mortgage-backed securities to Fannie Mae and Freddie Mac.

The case will provide the public with a rare glimpse into what went wrong during the mortgage crisis and could reveal the wisdom or the miscalculation of more than a dozen other banks that settled related cases over the last couple years, according to the Wall Street Journal.

The Tokyo-based investment bank is choosing to fight claims, while 16 other banks have chosen to settle with the mortgage giants. The lawsuits accused the banks of misrepresenting the quality of the mortgage-backed securities they sold to the government-sponsored enterprises (GSEs) during the housing boom.

The FHFA claims Nomura sold them $2 billion of bonds backed by faulty mortgages. The agency is seeking more than $1 billion in damages in the trial, which will be tried in the Manhattan federal court.

Nomura has refused to pay the penalty, saying Fannie Mae and Freddie Mac knew full well what they were buying.  The FHFA has reaped more than $20 billion in bank settlements without ever having to prove its case in court.

“There’s going to be a very important signal sent, whether Nomura wins or loses,” Robert Hockett, a professor at Cornell University Law School, told Bloomberg. “If Nomura loses, the strategy of other banks to settle will be vindicated.”

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