UPDATE 1-FHFA wins key sampling ruling in cases against banks
By Jessica Dye
NEW YORK Dec 3 (Reuters) - A U.S. judge on Monday ruled in favor of a federal regulator wishing to use statistical sampling in its lawsuits against big banks including Credit Suisse Group AG and Bank of America Corp over allegations they misled Fannie Mae and Freddie Mac into purchasing billions of dollars of risky mortgage debt.
U.S. District Judge Denise Cote in Manhattan federal court denied a motion from defendants in 15 consolidated lawsuits to strike the Federal Housing Finance Agency's proposed methodology for sampling and evaluating the more than 1.1 million mortgage loans at issue in the cases.
The FHFA, which regulates Fannie and Freddie, last year sued 18 banks over the housing finance giants' losses on more than $200 billion in mortgage-backed securities. The lawsuits accuse the banks of misrepresenting the quality of the loans underlying the securities and violating U.S. securities laws.
The banks have denied the regulator's allegations and argued they should be dismissed. Among the arguments by the defendants is a contention that the lawsuits were filed after the statute of limitations had expired.
As some of the cases proceed to trial, FHFA has sought an easier way to determine whether the mortgages in question conformed to proper lending standards. Re-underwriting a single mortgage loan file can take up to 3 hours of work and cost as much as $400, Cote wrote - a "tremendous cost" for the agency.
Instead, FHFA proposed a method for sampling those loans, which it said would yield a clear analysis of potential liability without having to evaluate each loan individually. The defendants disputed FHFA's methodology and questioned its reliability.
But Cote's ruling clears the way for FHFA to employ its sampling method as it prepares for trial in the cases, the first of which is scheduled to begin in January 2014.
Representatives for defendants Bank of America, JP Morgan Chase & Co and General Electric Co. declined to comment. Representatives for FHFA and other defendants could not be immediately reached for comment after regular business hours Monday.
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