"The magnitude of falsity, conservatively measured, is enormous," wrote U.S. District Judge Denise Cote of the Southern District of New York near the start of her a 361-page ruling in Federal Housing Finance Agency v. Nomura Holding America, decided last week after a four-week trial. The core question at issue in the case, in which a federal agency sued various financial agencies, was whether banks deceived the government-sponsored entities Fannie Mae and Freddie Mac about the nature of the mortgages contained in mortgage-backed securities the banks sold Fannie and Freddie. The court answered with a resounding yes.
The New York Times explains the ruling and puts it in context:
Many on Wall Street have long argued that the banks did not generally break the law when they packaged shoddy mortgages and sold them to investors in the lead-up to the financial crisis of 2008.
But on Monday, in the starkest of terms, a federal judge dealt a strong blow to that version of history. She ruled that two banks misled Fannie Mae and Freddie Mac in selling them mortgage bonds that contained numerous errors and misrepresentations. . . .
Some financiers and housing industry analysts have since asserted that, while Wall Street was acting out of greed and with a cavalier disregard for risk, it did not act deceptively. But Judge Cote, in her order, took a dim view of the banks’ conduct. She said that loan guidelines were “systematically disregarded” and found “disturbing examples” showing that Nomura was willing to package and sell defective loans.