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Business

Fannie Mae slaps Nomura on first day of subprime trial

By
Kevin Dugan
Published March 17, 2015, 2:15 a.m. ET

A home loan divided cannot stand, says the Fed housing giant in a long simmering suit.

Fannie Mae and Freddie Mac are charging they were misled by unscrupulous banks trying to pass off “crap” mortgages as top-notch securities, the Federal Housing Finance Agency argued in Manhattan federal court Monday, marking the first day of trial in a lawsuit four and a half years old.

Fannie and Freddie bought more than $2 billion in bundled mortgage bonds from Japanese bank Nomura for two years through 2007 that eventually soured during the 2008 financial crisis. Royal Bank of Scotland, which underwrote the securities, is also being sued.

The housing agency is looking for $1 billion in damages and to return the securities to the banks.

There were seven Nomura securities bundled together — almost 16,000 home loans, some of which were called “crap” or from “extremely dysfunctional” lenders, according to internal e-mails showed by FHFA lawyers.

“Nomura and RBS were very willing participants in creating the worst economic crisis in the country since the Great Depression,” Philippe Selendy, the lead lawyer for the team representing FHFA, said in court Monday.

“The evidence of material falsity is overwhelming,” he added.

The banks shot back that the government-sponsored enterprises are “entirely misleading,” and that they knew exactly what they were buying.

“Our disclosure was clear that a substantial number may use standards that are less stringent than those used by Fannie Mae or Freddie Mac,” said David Tolchin, representing Nomura.

“These are the largest, most sophisticated players in the market,” Thomas Rice, a lawyer for RBS, said.

The suit marks the first time that banks have gone to trial over their role in the 2008 financial crisis, a decision that’s said to come directly from Nomura’s top brass, including CEO Koji Nagai.