Bank of America Corp.'s Countrywide Financial unit is asking a judge to throw out claims for "billions of dollars" in damages by the Federal Housing Finance Agency for mortgage-backed securities bought by Freddie Mac and Fannie Mae.
The agency's federal and state securities law claims are time-barred, lawyers for Countrywide said in a Sept. 7 filing in support of their request to have the claims thrown out. U.S. District Judge Mariana Pfaelzer in Los Angeles is considering the request at a hearing today.
The Federal Housing Finance Agency sued Countrywide last year as conservator of Freddie Mac and Fannie Mae, the government-sponsored enterprises created to support the housing market by buying residential mortgages in the secondary market. It alleges negligent misrepresentations and fraud related to the offerings of Countrywide mortgage-backed securities.
"Defendants falsely represented that the underlying mortgage loans complied with certain underwriting guidelines and standards, including representations that significantly overstated the ability of the borrower to repay their mortgage loans," the FHFA said in its complaint.
Freddie Mac and Fannie Mae bought $26.6 billion worth of residential mortgage-backed securities Countrywide sold from Aug. 30, 2005, to Jan. 23, 2008, according to the complaint, originally filed in state court in New York last year and moved to federal court in Los Angeles. The agency also seeks to hold Bank of America, which bought Countrywide in 2008, liable as successor of the mortgage lender.
BofA Arguments
Fannie Mae and Freddie Mac have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency.
Bank of America and the other defendants, including former Countrywide executives and underwriters of the Countrywide mortgage-backed securities, are seeking only to dismiss the FHFA's claims based on timeliness, venue and jurisdiction issues and can still seek to dismiss them for other reasons, according to court filings.
Pfaelzer in the past has dismissed as time-barred securities law claims by other investors in Countrywide mortgage-backed securities that weren't included in the first lawsuits filed in 2007 and 2008. She has also dismissed claims that Bank of America is liable as successor of Countrywide.
17 Banks
The FHFA sued 17 banks including Charlotte, North Carolina- based Bank of America, JPMorgan Chase & Co., Citigroup Inc., Goldman Sachs Group Inc. and Deutsche Bank AG. Most of the suits were filed in federal court in Manhattan in September 2011 or moved to the court later. Mortgage-backed securities cases against Countrywide are being coordinated in Los Angeles.
Countrywide, based in Calabasas, California, was once the biggest U.S. residential lender, originating or purchasing about $1.4 trillion in mortgages from 2005 to 2007. The bulk of them were sold to investors as mortgage-backed securities.
Former Countrywide Chief Executive Officer Angelo Mozilo in 2010 agreed to a record $67.5 million settlement to resolve U.S. Securities and Exchange Commission claims that he misled investors. The Justice Department in February ended a criminal investigation of Mozilo without bringing charges.
The case is Federal Housing Finance Agency v. Countrywide, 12-01059, U.S. District Court, Central District of California (Los Angeles.)
