August 24, 2015 / 3:07 PM / 2 years ago

RBS loses bid to toss U.S. regulator's mortgage bond lawsuit

Aug 24 (Reuters) - Royal Bank of Scotland Group Plc has lost a bid to escape a U.S. regulator’s lawsuit accusing it of misleading Fannie Mae and Freddie Mac into buying $32 billion of mortgage-backed securities ahead of the financial crisis.

U.S. District Judge Alvin Thompson in Hartford, Connecticut, on Friday rejected the bank’s bid to dismiss the lawsuit by the Federal Housing Finance Agency, the conservator for Fannie and Freddie since their government takeover in 2008.

The ruling is a major blow for RBS, which the FHFA recently estimated could face $13 billion in damages if the case went to trial.

RBS, which is 78 percent-owned by the British government following the crisis, had argued that a recent U.S. Supreme Court ruling in an environmental case meant that the FHFA had sued too late in filing the lawsuit in 2011.

But Thompson ruled that a law passed in 2008 that established the FHFA in the wake of the financial crisis extended the period of time the agency had to bring lawsuits.

The provision, Thompson wrote, “establishes one limitations period that applies to both the federal and state claims in this case.”

A spokeswoman for RBS did not immediately respond to a request for comment on Monday. The FHFA declined to comment.

The case against RBS is the biggest and last of 18 lawsuits the FHFA filed in 2011 over about $200 billion in mortgage-backed securities that various banks sold to U.S. mortgage giants Fannie Mae and Freddie Mac.

The FHFA contended that in buying $32.1 billion in mortgage-backed securities from RBS, Fannie Mae and Freddie Mac relied on false and misleading statements contained in offering documents, leading them to suffer massive losses.

Overall, the FHFA has already obtained $18.7 billion through settlements and judgments against 16 banks, including Bank of America Corp, JPMorgan Chase & Co and Deutsche Bank AG.

That sum includes $806 million the FHFA won in May after it took Nomura Holdings Inc and RBS to trial in one of the lawsuits. That case is on appeal.

The case is Federal Housing Finance Agency v. The Royal Bank of Scotland Group Plc, U.S. District Court, District of Connecticut, No. 11-01383. (Reporting by Nate Raymond in New York; Editing by Dan Grebler)

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