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FHFA Seeking $13 Billion From RBS in Mortgage-Backed Securities Suit

commercial-falling-moneyThe Royal Bank of Scotland (RBS) may have to pay as much as $13 billion in a mortgage-backed securities lawsuit filed by the Federal Housing Finance Agency (FHFA), according to multiple media reports.

FHFA made a filing in the U.S. District Court in Connecticut in late June seeking $13 billion in damages, according to a report from Bloomberg. RBS was one of 18 lenders sued by the FHFA in 2011 to recoup U.S. taxpayer costs following the government's $187.5 billion bailout of Fannie Mae and Freddie Mac in 2008.

The lawsuit against RBS in the Connecticut court involved the selling of about $32 billion worth of faulty mortgage-backed securities to Fannie Mae and Freddie Mac before the crisis. The bank had set aside about $3 billion for a possible settlement but reports surfaced that the FHFA might ask as much as $7.7 billion. The case should go to trial sometime in 2016 if a settlement is not reached. Analysts from Bloomberg Intelligence predict that the two parties will reach a settlement for between $1.8 billion and $4.5 billion before it goes to trial. The $13 billion FHFA asked for in the filing exceeds all previous estimates.

Out of the 18 lenders the FHFA sued, 16 of them settled for a combined total of about $17 billion. Nomura Holdings took FHFA to trial in March for a case in which RBS was also a defendant. In the two-month  long bench trial, Judge Denise Cote in the U.S. District Court in the Southern District of New York found Nomura liable for deceiving Fannie Mae and Freddie Mac in the sale of $2 billion worth of mortgage-backed securities to the GSEs prior to the financial crisis of 2008. FHFA was seeking $1.1 billion in damages in that case; the judge awarded the agency $806 million. The bank has appealed the verdict.

In June 2014, RBS agreed to pay $99.5 million to settle a separate FHFA suit claiming that the bank sold more than $2 billion worth of faulty mortgage-backed securities to Fannie Mae and Freddie Mac between 2005 and 2007, the years of the "housing bubble" in the U.S.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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