UPDATE 1-Banks seek U.S. appeals court intervention in FHFA lawsuits

Wed Mar 27, 2013 6:19pm EDT

By Nate Raymond

NEW YORK, March 27 (Reuters) - Fifteen major banks sued by the Federal Housing Finance Agency over risky housing debt urged a U.S. appeals court on Wednesday to intervene, citing "gravely prejudicial" rulings by the trial judge coordinating the litigation.

In a joint petition filed with the 2nd U.S. Circuit Court of Appeals in New York, the banks said U.S. District Judge Denise Cote, had "systematically deprived" them of evidence to defend themselves, and issued rulings aimed at coercing settlements.

The banks, which include UBS AG, JPMorgan Chase & Co and Bank of America Corp, want to reverse several of Cote's rulings, and get more access to information about what Fannie Mae and Freddie Mac knew about mortgage debt they bought prior to the 2008 financial crisis.

Fannie Mae and Freddie Mac, the nation's two biggest mortgage finance companies, are regulated by the FHFA.

The unusual filing Wednesday was a sign of how serious the litigation had become. Analysts have said the banks face tens of billions of dollars in possible damages.

The lawsuits, filed in 2011, accuse the banks of violating securities laws by misleading the Fannie and Freddie about the quality of home loans packaged into $200 billion in securities.

A spokeswoman for the FHFA had no immediate comment.

Of the 18 lawsuits the FHFA filed, 16 were transferred to Cote in December 2011. Since then, Cote, 66, has exerted a strong hand over how the cases have developed.

She has denied motions to dismiss those cases and has said she thinks the cases should settle. She has also limited depositions and document discovery and set a speedy trial schedule.

The first trial is scheduled for January 2014 against UBS AG, with others to follow. The banks are awaiting a 2nd Circuit ruling on whether to reverse Cote's decision to not dismiss the UBS case.

The banks, which must continue to face Cote, said filing Wednesday's petition was not something they did lightly. But they said they "are being forced to proceed under a series of gravely prejudicial rulings, some aimed at pressuring petitioners to settle."

Already, one defendant, General Electric Co, has agreed to settle. Terms were confidential.

In the petition, the banks say Cote has prohibited discovery into the business side of Fannie and Freddie that put together mortgage-backed securities rather than purchasing them.

The banks also complain that Cote has limited them to 20 depositions of people at Fannie, Freddie and the FHFA for all 15 lawsuits, while allowing the FHFA to take more than 400 on its end.

The banks, which also include Citigroup Inc, Deutsche Bank AG and Barclays PLC, called Cote's approach "one-sided" and said it is designed to force settlement rather than "foster fair and reasonable determination of the issues."

"The rulings prejudge facts a jury should decide based on a full evidentiary record," the banks said.

Cote did not respond to a request for comment on Wednesday. Stefanie Johnson, a spokeswoman for the FHFA, declined comment.

Other banks that joined the request include First Horizon National Corp, Goldman Sachs Group Inc, Nomura Holdings Inc, Societe Generale, Morgan Stanley, Ally Financial Inc and Royal Bank of Scotland Group and Credit Suisse Group AG.

The case is In re FHFA Coordinated Securities Litigation, 2nd U.S. Circuit Court of Appeals, No. 13-1122.