Bankruptcy won't save ResCap from FHFA lawsuit

by Adam Smith13 Aug 2013

A judge has ruled that the bankruptcy of Ally Financial's mortgage unit won't save it from a lawsuit by the FHFA.

The FHFA will be able to pursue its lawsuit against Ally's bankrupt mortgage unit, ResCap, in spite of the unit being in bankruptcy, Reuters has reported. Judge Denise Cote, of U.S. District Court in Manhattan, ruled that the lawsuit would be an unlikely to have an "immediate adverse economic consequence" for ResCap's estate, and was therefore not subject to a stat under U.S. Bankruptcy Code.

The FHFA is suing Ally, along with 17 other defendants, for allegedly making false or misleading statements relating to MBS sales to Fannie Mae and Freddie Mac.

Some banking giants targeted by the lawsuits have recently settled, with UBS shelling out $885m. Citigroup also reached a recent settlement that will see it pay shareholders $590m over securities backed by subprime mortgages.


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