[1]Former Fannie Mae CEO Daniel Mudd took the witness stand in a Manhattan federal court on Tuesday in the trial of the Federal Housing Finance Agency (FHFA [2]) vs. Nomura Holdings in which FHFA is seeking $1.1 billion in damages over losses suffered when the housing crisis hit, according to a report [3] from Reuters.
The Agency alleges it suffered monumental losses when the sponsor of certain 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. Mudd, who left Fannie Mae in 2008 after it was taken over by FHFA, was subpoenaed by Nomura and RBS to testify in the trial, according to the report.
Mudd reportedly testified in the trial that certain macroeconomic factors, including housing prices, could possibly have an impact on investments such as mortgage-backed securities. When he was asked if Fannie Mae could have predicted the magnitude of the housing crash, Mudd said the GSE's predictions "undershot" what eventually happened and that to his knowledge, no one at Fannie Mae could have accurately predicted the extent of the housing crisis.
Judge Denise Cote is overseeing the non-jury trial, which began on March 16 in the U.S. District Court of the Southern District of New York in Manhattan. The trial is expected to last at least another week. Cote said when the trial opened that she may schedule closing arguments for the trial on April 8.
Nomura, which is headquartered in Japan and is one of the world's biggest banks, and the Royal Bank of Scotland are the first financial institutions 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, when the government seized control of both Enterprises. The other 16 lenders have paid a combined total of about $24 billion to settle with FHFA.