Nomura, RBS sold faulty mortgages to Freddie Mac, Fannie Mae: US district judge

US district judge Denise Cote ruled yesterday that two banks - Japan's Nomura Holdings and the UK's Royal Bank of Scotland - fraudulently sold faulty mortgages to Freddie Mac and Fannie Mae leading up to the 2008 housing crash. "The magnitude of falsity, conservatively measured, is enormous," Cote wrote in what The New Times called her "scathing 361-page decision."

Nomura and RBS, the only two of 18 large banks that opted to not settle with the Federal Housing Finance Agency (FHFA); the other 16 probably chose to avoid baring their dubious deeds in court and collectively paid up almost $18 billion in penalties.

In the jury-less trial, Coat heard evidence that underwriting defects affected nearly two-thirds of the mortgages RBS and Nomura packaged into securities. The FHFA is  likely to ask for $500 million in compensation. According to Namura, it would appeal the ruling.

In an indirectly related development, The Wall Street Journal reported that top executives from seven of the largest US banks met on 31 March to discuss the "anti-Wall Street rhetoric already bubbling up on the 2016 campaign trail" and brainstorm ways to "push back against the prevailing narrative that banks are bad."

There won't be "a new ad campaign or lobbying blitz, people familiar with the discussions" told The Journal, in part because "many bank officials are skeptical they can do much to counteract critics without triggering more damaging backlash."

According to Cote, the FHFA was entitled to judgment against Nomura and the Royal Bank of Scotland Plc, which underwrote some of the $2 billion in mortgage-backed securities, in light of misstatements they made in offering documents.

Cote asked the FHFA to submit a proposed judgment with updated damages figures on the basis of her ruling by Friday.

However, Cote citing figures earlier submitted, said the FHFA was entitled to $624.4 million, minus over $178 million in payments it received since launching the lawsuit in 2011.

The FHFA, which had acted as conservator for Fannie and Freddie after their acquisition by the government in 2008, welcomed the ruling, which, however, fell much short of the $1 billion it sought at trial.

"It is clear the court found that the facts presented by FHFA were convincing," FHFA general counsel Alfred Pollard said in a statement.

Tokyo-based Nomura said in a statement that it plans to appeal, saying it was "confident that it was consistently candid, transparent and professional in all of its dealings with Fannie Mae and Freddie Mac."