U.S.’s $1B Mortgage Bond Trial Against Nomura Holdings Comes to a Close

Closing arguments took place this week in the Federal Housing Finance Agency’s mortgage-backed securities lawsuit against Nomura Holdings Inc. (NMR). The U.S. regulator claims that the bank made false statements when selling some $2 billion in MBSs to Freddie Mac (FMCC) and Fannie Mae (FNMA).

A lawyer for the bank said that FHFA’s claimed losses were not the fault of Nomura or that of Royal Bank of Scotland (RBS), which the government is also pursuing over the securities. Instead, contended the attorney, market conditions during the 2008 economic crisis were to blame.

The is the first of 18 MBS fraud cases over about $200 million in securities that different banks sold to mortgage finance giants to go to trial. Already, FHFA has gotten $17.9 billion in settlements with the other financial firms, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), and Deutsche Bank AG (DB). There was just this case and the one against Royal Bank of Scotland remaining.

At issue is whether Freddie and Fannie knew that there were problems with the securities they were buying and of the alleged damages that were due to misrepresentations or because of the housing crisis at the time. FHFA is accusing Nomura, which was the sponsor of the securities, of misstating key details about the mortgages that were backing the securities. RBS was the underwriter.

Nomura’s legal team, however, argued during the trial that that the agency did not provide much testimony to support its claims, depending instead on paid expert witnesses using allegedly questionable methodologies to examine the mortgages backing the securities.

FHFA said that 68% of the loans underlying the securities purchased from Nomura by Freddie and Fannie had underwriting defects, while close to a third of them purportedly having false loan-to-value ratios.

Freddie and Fannie buy loans from landers, package them into securities, while giving investors a guarantee that they will make them whole should the loans default. During the housing boom, the two entities were among largest investors in triple-A rated private-label securities, purchasing them partially because they helped fulfill government affordable housing mandates and because shareholders profited from them. When the economic crisis happened, however, the securities lost billions of dollars.

At Shepherd Smith Edwards and Kantas, LTD, our securities fraud lawyers have spent the last several years helping investors who have sustained mortgaged-backed securities fraud-related losses to recoup their investments. Many of these losses didn’t have to happen but were very much a result of misrepresentations, omissions, and bad advice given to them by financial firms and their representatives. Our MBS fraud lawyers are available for a free case consultation to help you explore your legal options.

Nomura Set to Square Off Against FHFA in Crisis-Era Securities Case, The Wall Street Journal, March 16, 2015

Nomura blasts U.S. agency’s case as $1 bln mortgage bond trial closes, Reuters, April 9, 2015

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