FHFA's Lawsuits Against Banks Are Timely, Appeals Court Rules

The U.S. government did not wait too long to charge UBS and other mortgage underwriters with misleading investors in the run-up to the mortgage meltdown, a U.S. appeals court ruled Friday.

The 2nd Circuit Court of Appeals rejected the bank's request to overturn a ruling last spring by U.S. District Judge Denise Cote in Manhattan that dismissed UBS' claim the Federal Housing Finance Agency missed a legal deadline for charging UBS with misconduct in the sale of securities backed by residential mortgages.

The ruling by the appeals court means a series of lawsuits by the FHFA against UBS and 17 other banks and mortgage lenders can continue.

The FHFA sued the lenders in July 2011 as part of its role as conservator for Fannie Mae and Freddie Mac. The lawsuit against UBS concerns $6.4 billion in mortgage-backed securities purchased by Fannie and Freddie in 23 securitizations by the bank over a roughly two-year period beginning in 2005.

Cote in May gave UBS permission to appeal her order while the cases before her proceed. A trial against UBS is scheduled to start in January, with trials against other underwriters to follow.

In its appeal, UBS charged that the Housing Economic and Recovery Act, which established the FHFA in 2008 and gave the agency three years to file claims, did not supersede securities laws that give plaintiffs three years from the specific acts of alleged wrongdoing by a defendant.

FHFA said Congress gave the agency three years from the agency's establishment in July 2008 to file the suits notwithstanding the statutes to which USB pointed.

The appeals court sided with FHFA. Congress intended "to give FHFA the time to investigate and develop potential claims on behalf of [Fannie and Freddie] - and thus it provided for a period of at least three years from the commencement of a conservatorship to bring suit," Judge Denny Chin wrote for the three-judge panel.

"Congress obviously realized that it would take time for this new agency to mobilize and to consider whether it wished to bring any claims and, if so, where and how to do so," Chin added.

Alfred Pollard, FHFA's general counsel, said in an emailed statement that the agency is pleased with the ruling. "FHFA remains committed to meeting its obligations as conservator of Fannie Mae and Freddie Mac to minimize losses and protect taxpayers," Pollard said.

UBS declined to comment on the ruling.