Judge rules against Nomura in mortgage bond lawsuit

(Reuters) — A U.S. judge on Monday ruled that Nomura Holdings Inc. made false statements in selling mortgage-backed securities to Fannie Mae and Freddie Mac ahead of the 2008 financial crisis.

U.S. District Judge Denise Cote in Manhattan ruled for the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac, in a ruling that could allow the U.S. regulator to recover around $450 million.

Judge Cote, who presided over a nonjury trial, said the FHFA was entitled to judgment against Nomura and the Royal Bank of Scotland P.L.C., which underwrote some of the $2 billion in mortgage-backed securities, in light of misstatements they made in offering documents.

"The offering documents did not correctly describe the mortgage loans," the judge wrote in a 361-page decision. "The magnitude of falsity, conservatively measured, is enormous."

The exact amount of damages to be awarded was unclear. Judge Cote ordered the FHFA to submit a proposed judgment with updated damages figures based on her ruling by Friday.

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

The FHFA, which has acted as conservator for Fannie and Freddie since the government took them over in 2008, welcomed the ruling, which nonetheless appeared to deliver less than 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.

A spokesman for Nomura had no immediate comment. An RBS representative did not immediately respond to a request for comment.

The lawsuit was the first to reach trial out of 18 the regulator filed in 2011 over some $200 billion in mortgage-backed securities that various banks sold Fannie Mae and Freddie Mac.

The FHFA previously obtained nearly $17.9 billion in settlements with banks including Bank of America Corp., JPMorgan Chase & Co. and Deutsche Bank A.G. Those deals followed a series of adverse rulings by Judge Cote.

The FHFA said 68.6% of the loans underlying the securities had underwriting defects. Nearly a third had false loan-to-value ratios, while 13.1% were underwater from the start, it said.

Nomura was the securities' sponsor, and RBS underwrote four of the deals.

Nomura's lawyers countered that any losses incurred by Fannie and Freddie were not the banks' fault and were due to overall market conditions.

The case is Federal Housing Finance Agency v. Nomura Holding America Inc., U.S. District Court, Southern District of New York, No. 11-06201.