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Judge Cote Holds Banks Accountable in Scathing 361-Page Opinion

Tue Jun 23, 2015 by on Florida Law News

While it may seem like everyone let the banks get off the hook for causing the ’08 crash, The New York Times recently reported that there is at least one federal judge, Judge Denise L. Cote – decided to publically hold the “too big to fail banks” accountable

Seems as if the banks are the “fuel” and the “fire” according to Judge Denise L. Cote of the Federal District Court in Manhattan, NYC. Appears that Judge Cote  issued a 361-page decision in Federal Housing Finance Agency v. Nomura Holding America, Inc.; et al, ruling that two banks (Nomura Holdings and Royal Bank of Scotland) misled Fannie Mae and Freddie Mac by selling them mortgage bonds that contained numerous errors and misrepresentations. This decision comes after other firms, including Goldman Sachs and Bank of America settled with the FHFA paying nearly $18 billion in penalties. Nomura Holdings and Royal Bank of Scotland were the only two of 18 financial firms who decided to take their case to trial.
Within her opinion, Judge Cote explains that while the case is complex “at its core there is a single, simple question. Did defendants accurately describe the home mortgages in the Offering Documents for the securities they sold that were backed by those mortgages? Following trial, the answer to that question is clear…and it is a resounding NO! The Offering Documents did not correctly describe the mortgage loans. The magnitude of falsity, conservatively measured, is enormous, Judge Cote singles out the key question in this case, did the banks lie? And finds the answer, they sure as heck did.

As easily as the Judge presents the issue of the case the Judge is also able to present Nomura’s defense “[a]t summation, defense counsel essentially argued that everyone understood back in 2005 to 2007 that the loans were lousy and had not been properly underwrittenand further it was not their deceptive loan documents; but rather the housing crash which caused the bonds to collapse.

Obviously that is a ridiculous and circumlocutious argument as the banks were both the fuel and the fire. Judge Cote rejected that defense and specifically pointed out that “[t]he origination and securitization of these defective loans not only contributed to the collapse of the housing market, the very macroeconomic factor that defendants say caused the losses, but once that collapse started, improperly underwritten loans were hit hardest and drove the collapse even further.”

While this decision comes as a welcome surprise after years of denial of the banks’ wrongdoing, a New York Times editorial really hits at the deeper rooted issues by asking, If the relatively unknown housing finance agency (the FHFA)could prevail over foreign banks, why haven’t far more powerful regulators and prosecutors at the Department of Justice and the Securities and Exchange Commission done more to expose and redress wrongdoing by big Wall Street banks in the mortgage bubble? The answer to that question requires a hefty dose of cynicism, but there is some hope Judge Cote’s decision will inspire others to see the light and place the blame where blame is due…squarely on the banks.