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Royal Bank of Scotland Loses Bid to Have FHFA’s MBS Suit Dismissed

gavel-three [1]A federal judge in Connecticut has denied a bid by the Royal Bank of Scotland (RBS) to dismiss a lawsuit filed by the FHFA accusing the bank of misleading Fannie Mae [2] and Freddie Mac [3] in the sale of $32 billion worth of residential mortgage-backed securities before the financial crisis, according to media reports [4].

FHFA claims that Fannie Mae and Freddie Mac relied on false and misleading statements made by RBS when purchasing the mortgage-backed securities, causing the GSEs to suffer massive losses. Reports surfaced in early July [5] that the FHFA, conservator of Fannie Mae and Freddie Mac since 2008, is seeking up to $13 billion in damages from RBS in the lawsuit.

RBS attempted to have the lawsuit dismissed on the grounds that the FHFA waited too long to sue. The suit was filed in 2011, three years after the financial crisis. U.S. District Judge Alvin Thompson in the U.S. District Court, District of Connecticut ruled that the time limit for filing the suit had been extended by a law passed in the wake of the financial crisis, according to a report from Reuters [4].

The FHFA said in an email to DS News that it would not be commenting on the judge's ruling or the case. A spokesperson from RBS could not immediately be reached for comment.

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. 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. Nomura was found liable [6] for deceiving the GSEs in the sale of $2 billion worth of mortgage-backed securities and was ordered to pay $806 million to the FHFA. 2008. The bank has appealed the verdict. The case against RBS is the last of the FHFA's 18 lawsuits that has not either been settled or completed a trial.

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.