Tag Archives: Mortgage-Backed Securities

The nearly two-month long court battle between the Federal Housing Finance Agency (FHFA) and Nomura Holdings came to an end Monday when a federal judge found the bank liable for selling shoddy mortgages to Fannie Mae and Freddie Mac prior to the 2008 financial crisis.

The suit was dismissed by the Appellate Division of the New York Supreme Court in May 2013 on the grounds that ACA Financial, as a "highly sophisticated commercial entity" should have done its research on the securities before purchasing

Counsel's Corner is an ongoing series in which DS News talks with default servicing attorneys around the country about the most pressing issues facing the default servicing industry. This installment features Don Hawthorne, Partner in the New York office of Axinn Veltrop & Harkrider.

Deutsche Bank sued Morgan Stanley in April 2014, claiming that the New York-based investment firm breached a contract by misrepresenting the quality of about $735 million worth of loans held in a trust in in which Deutsche Bank was the trustee and Morgan Stanley was the sponsor.

At the heart of the FDIC's claim is that the banks misled Alabama-based Colonial Bank, an FDIC-insured institution, as to the quality of $300 million worth of mortgage-backed securities they sold to Colonial in the run-up to the financial crisis. As a result of the soured securities, Colonial suffered huge losses and went into receivership in 2009. FDIC sued the banks three years later in 2012, claiming the banks violated the Securities Act of 1933.

Morgan Stanley, a worldwide investment firm that is headquartered in New York, has had ongoing legal troubles in the last year or so with regards to its sales of RMBS prior to the financial crisis, resulting in a series of settlements totaling hundreds of millions.

The claim was finally settled Wednesday, when both parties filed a stipulation of dismissal with prejudice. Though terms of the settlement were not stipulated in the court documents, they did say each party would be responsible for its own expenses stemming from the lawsuit.

Bank of America was ordered to pay a $1.27 billion civil penalty in July 2014 as a result of its alleged role in the Hustle case. The bank has been fighting to overturn that verdict since, claiming that the Hustle program ended prior to its July 2008 acquisition of Countrywide. Rakoff rejected a motion by the bank to have the verdict reversed in early February. He also rejected the bank's motion for a new trial at that time.

The court ruled on Wednesday that no action taken by RBS executives amounted to fraud with relation to the mortgage-backed securities, according to the report, and two out of the three appellate judges shared this opinion. The majority opinion said that "[s]tatements of general corporate optimism, such as these, do not give rise to securities violations."

FHFA alleges it suffered monumental losses when the sponsor of the mortgage-backed securities, Tokyo-based 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.