"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.
Read the full story, including a more detailed summary of the opinion's key findings, here. The decision itself is here.