Banks face challenge averting U.S. regulator's mortgage lawsuits - judge

NEW YORK Wed Jul 23, 2014 5:59pm EDT

The HSBC building is seen on Canary Wharf in London May 11, 2011 .   REUTERS/Olivia Harris

The HSBC building is seen on Canary Wharf in London May 11, 2011 .

Credit: Reuters/Olivia Harris

NEW YORK (Reuters) - A federal judge on Wednesday said banks faced an uphill battle in convincing her to dismiss a U.S. regulator's claims that they misled Fannie Mae and Freddie Mac into buying mortgage-backed securities that later went sour.

At a hearing in New York, U.S. District Judge Denise Cote cast doubt on whether she would revisit her ruling finding the Federal Housing Finance Agency (FHFA) did not wait too long in suing the banks.

"I don't want anyone to be surprised if in my view the defendants have a steep hill to climb here," Cote said before hearing arguments from the lawyers.

The hearing was prompted by motions by HSBC Holdings plc, Goldman Sachs Group Inc and Nomura Holdings Inc, the three primary remaining banks with lawsuits before Cote out of 18 the FHFA filed in 2011 over about $200 billion in mortgage-backed securities.

A ruling for the banks could avert what would be some of the biggest U.S. trials to spill out of the 2008 financial crisis. Goldman Sachs and HSBC are scheduled to face trial Sept. 29. A trial in the Nomura case is due for Jan. 26.

Other banks have settled ahead of trial, enabling the FHFA to recover $16.1 billion.

The cases moved forward after Cote in 2012 issued a key ruling rejecting an argument by UBS AG that the case against it was untimely.

The 2nd U.S. Circuit Court of Appeals in New York upheld Cote in 2013. UBS later settled for $885 million, but the ruling's reasoning subsequently was applied to the remaining cases.

In June, the U.S. Supreme Court ruled in an environmental case that a federal law did not preempt a state-law statute that placed time limits on bringing a lawsuit that applied even if a plaintiff did not know it had a claim.

The ruling prompted HSBC, Goldman and Nomura to push Cote to consider the timeliness issue again in the FHFA cases, which also assert state-law claims.

On Wednesday, the banks and FHFA, both brought in high-profile litigators, David Boies and Kathleen Sullivan, respectively, to argue the case.

Sullivan, a former dean of Stanford Law School representing the FHFA, said a 2008 law establishing the agency as conservator for Fannie and Freddie after the financial crisis was intended to give it time to build cases like these.

"The statute's purpose is to enable the FHFA to have the time it needed," she said.

But Boies, who represented HSBC and is perhaps best known for representing former Vice President Al Gore in the 2000 presidential election recount, said similarities between the FHFA's cases and the Supreme Court one were "striking."

"The issue that we have here is not a disagreement between Ms. Sullivan and myself," he said. "The issue is we have a disagreement between the plaintiff and the Supreme Court."

The case is Federal Housing Finance Agency v. HSBC North America Holdings Inc, U.S. District Court, Southern District of New York, No. 11-6189.

(Reporting by Nate Raymond in New York; Editing by Tom Brown)