Ex-Fannie Mae CEO testifies in FHFA shoddy MBS case

by MPA02 Apr 2015
Former Fannie Mae CEO Daniel Mudd has testified in a Manhattan federal court in the trial of the Federal Housing Finance Agency (FHFA) vs. Nomura Holdings. The FHFA is seeking $1.1 billion in damages over losses it suffered when the housing crisis hit.

Mudd, who left Fannie Mae in 2008 after it was taken over by FHFA, appeared in court after being subpoenaed by Tokyo-based investment bank Nomura Holdings and Royal Bank of Scotland Group (RBS), according to a report from Reuters.

The FHFA argues it suffered monumental losses when the sponsor of certain mortgage-backed securities, Nomura, and the securities' underwriter RBS did not follow underwriting guidelines on 68% of a sample of a bundle of securities backing more than $2 billion worth of mortgages sold to the GSEs prior to the financial crisis.

In his testimony, Mudd told Nomura’s lawyer that macroeconomic factors, including housing prices, were among the factors that could have an impact on those investments, according to Reuters. When asked if Fannie Mae had been able to predict the housing market decline, Mudd said the company's predictions "undershot" what ultimately took place.

The Tokyo-based investment bank is choosing to fight claims, while 16 other banks have chosen to settle with the mortgage giants.

“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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