By Jessica Dye
NEW YORK Dec 3 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
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