UBS loses bid to dismiss FHFA mortgage debt lawsuit

NEW YORK Fri Apr 5, 2013 1:25pm EDT

The logo of Swiss bank UBS is seen on a building in Zurich, in this February 13, 2013 file photograph. REUTERS/Michael Buholzer/Files

The logo of Swiss bank UBS is seen on a building in Zurich, in this February 13, 2013 file photograph.

Credit: Reuters/Michael Buholzer/Files

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NEW YORK (Reuters) - A federal appeals court rejected UBS AG's (UBSN.VX) bid to dismiss a U.S. regulator's lawsuit seeking to hold the Swiss bank responsible for losses on mortgage securities at Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB).

The 2nd U.S. Circuit Court of Appeals said the Federal Housing Finance Agency did not wait too long to sue UBS over the $6.4 billion of mortgage securities that Fannie Mae and Freddie Mac bought. It also rejected UBS' contention that the FHFA lacked standing to sue.

Friday's decision is a victory for the FHFA and could add pressure to settle on the 17 banks and lenders the agency is suing to recoup losses at Fannie Mae and Freddie Mac on roughly $200 billion of mortgage securities.

The decision upholds a May 2012 ruling by U.S. District Judge Denise Cote in Manhattan. Its reasoning will apply in the 14 other FHFA lawsuits she handles, plus a 15th lawsuit in Connecticut. The other FHFA case is in California.

UBS spokeswoman Karina Byrne did not immediately respond to requests for comment. FHFA General Counsel Alfred Pollard said he was pleased with the decision.

The agency sued UBS in July 2011 for fraud and misrepresentation in its underwriting and sale of debt that Fannie Mae and Freddie Mac bought from September 2005 through August 2007.

UBS argued that this lawsuit was filed too late, beyond a three-year deadline prescribed by law.

But Circuit Judge Denny Chin wrote for a unanimous three-judge 2nd Circuit panel that the clock began when the FHFA became the conservator for Fannie Mae and Freddie Mac after federal regulators seized them on September 7, 2008.

He said the Housing and Economic Recovery Act, a 2008 law designed to stabilize Fannie Mae, Freddie Mac and other government-sponsored agencies, allowed the case to go ahead.

"Congress obviously realized that it would take time for this new agency to mobilize and to consider whether it wished to bring any claims and, if so, where and how," Chin wrote.

The appeals court also rejected UBS' contention that the FHFA lacked standing to sue.

That argument was based on the premise that the appointments of FHFA director Edward DeMarco and his interim predecessor James Lockhart were unconstitutional because they failed to go through proper procedures.

Chin said the 2008 law empowered President Barack Obama to appoint DeMarco after Lockhart departed.

Among the other banks whose cases are overseen by Cote are Barclays Plc (BARC.L), Bank of America Corp (BAC.N), Citigroup Inc (C.N), Deutsche Bank AG (DBKGn.DE), Goldman Sachs Group Inc (GS.N) and JPMorgan Chase & Co (JPM.N).

In January, the FHFA settled an 18th lawsuit, against General Electric Co (GE.N).

The case is Federal Housing Finance Agency v. UBS Americas Inc et al, 2nd Circuit Court of Appeals, No. 12-3207.

(Reporting by Bernard Vaughan, Jonathan Stempel and Nate Raymond; Editing by Gerald E. McCormick, Bernadette Baum and Andre Grenon)

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