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FHFA, Nomura Trial Expected to Continue for a Month

FHFA Nomura Mortgage-Backed Securities Trial [1]The trial in the case of FHFA [2]vs. Nomura Holdings [3] over claims that the bank misrepresented mortgage-backed securities to Fannie Mae [4] and Freddie Mac [5] in the run-up to the financial crisis is expected to last for at least a month, according to a report [6] from Reuters.

Judge Denise Cote, overseer of the non-jury trial which began Monday in the U.S. District Court of the Southern District of New York in Manhattan, said she may schedule closing arguments for the trial on April 8, according to the report.

FHFA is seeking $1.1 billion in damages. The Agency alleges it suffered monumental losses when the sponsor of the mortgage-backed securities, Nomura, and the securities' underwriter, Royal Bank of Scotland, did not follow underwriting guidelines on 68 percent 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 of 2008.

A lawyer for FHFA said in Monday's opening statements that Nomura and RBS were "very willing participants" in a scheme to defraud the GSEs, which precipitated the financial crisis. A lawyer from Nomura responded by saying that "no falsehoods were made" and that any losses FHFA suffered were due to declines in the housing market that were unforeseeable, according to the report.

Nomura, which is headquartered in Japan and is one of the world's biggest banks, is the first financial institution to go to trial out of the 18 lenders FHFA sued in 2011 to recoup U.S. taxpayer costs following the government's $188 billion bailout of Fannie Mae and Freddie Mac in 2008, after which the government seized control of both Enterprises. The only other financial institution out of the 18 that has not settled with FHFA is Royal Bank of Scotland, which is expected to go to trial sometime next year if no settlement is reached. The other 16 lenders have paid a combined total of about $24 billion to settle with FHFA, including $9.3 billion paid by Bank of America in March 2014.