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

commercial-falling-money [1]The Royal Bank of Scotland (RBS [2]) may have to pay as much as $13 billion in a mortgage-backed securities lawsuit filed by the Federal Housing Finance Agency (FHFA [3]), according to multiple media reports [4].

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 [4]. 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 [5] of faulty mortgage-backed securities to Fannie Mae and Freddie Mac before the crisis. The bank had set aside about $3 billion [5] 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 [6] 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 [7] 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.