Federal Housing Finance Agency v. Nomura Holding America, Inc. et al

Filing 1263

MEMORANDUM OPINION AND ORDER: Defendants January 8 motion to exclude Hunters testimony about pre-closing loan tape discrepancies is denied. (Signed by Judge Denise Cote on 2-12-2015) (tg)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
FEDERAL HOUSING FINANCE AGENCY,
:
:
Plaintiff,
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:
-v:
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:
NOMURA HOLDING AMERICA, INC., et al., :
:
Defendants.
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:
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11cv6201 (DLC)
MEMORANDUM
OPINION & ORDER

APPEARANCES:

For plaintiff:
Manisha M. Sheth
QUINN EMANUEL URQUHART & SULLIVAN, LLP
51 Madison Ave., 22nd Fl.
New York, NY 10010
For defendants:
David B. Tulchin
SULLIVAN & CROMWELL LLP
125 Broad St.
New York, NY 10004
DENISE COTE, District Judge:
Defendants moved in limine on January 8, 2015 to exclude
the trial testimony of plaintiff Federal Housing Finance
Agency’s (“FHFA”) expert witness Robert W. Hunter (“Hunter”)
relating to inaccuracies in pre-closing loan tapes.

Loan tapes

are spreadsheets containing a “detailed listing of the mortgage
loans [Nomura] intended to include in a particular

securitization, and the specific credit characteristics of each
of those loans.”

Such characteristics included borrowers’ FICO

scores 1 and debt-to-income (“DTI”) ratios, 2 the loans’ loan-tovalue (“LTV”) ratios, 3 and the owner-occupancy status of the
loans.

Defendants used the loan tapes to calculate the

statistics displayed in various tables in the Prospectus
Supplements reporting selected characteristics of the loans
included in a supporting loan group for a Certificate
(“Collateral Tables”).

The loan tapes were also provided to

credit rating agencies for purposes of evaluating the
securities.

The loan tapes are not, however, mentioned in any

of the Supplements.
FHFA alleges in its Amended Complaint that the Supplements
included misrepresentations about certain characteristics of the
mortgage loans, including data concerning owner occupancy and
LTV ratios, as well as misrepresentations about Originators’
compliance with underwriting standards.

FHFA alleges as well

FICO refers to a consumer credit score issued by the Fair Isaac
Corporation.
1

Debt-to-income ratios compare a borrower’s monthly debt
obligations to a borrower’s monthly income.
2

For any given mortgage, the LTV ratio is determined by
computing the balance of the loan as a percentage of the value
of the property that secures it, often determined on the basis
of an appraisal. The higher the ratio, the less equity the
homeowner has in the property. Mortgages with an LTV ratio in
excess of 100% are “underwater.”
3

2

that credit rating agencies gave inflated ratings to the
Certificates as a result of defendants’ providing these agencies
with incorrect data concerning the attributes of the loans.
FHFA retained Hunter to re-underwrite the samples of loans
at issue in this litigation. 4

See FHFA v. Nomura Holding Am.,

Inc., No. 11cv6201 (DLC), 2015 WL 394072 (S.D.N.Y. Jan. 29,
2015) (owner-occupancy status); FHFA v. Nomura Holding Am.,
Inc., No. 11cv6201 (DLC), 2015 U.S. Dist. LEXIS 10458 (S.D.N.Y.
Jan. 29, 2015) (“minimum industry standards”); FHFA v. Nomura
Holding Am., Inc., No. 11cv6201 (DLC), 2015 WL ------ (S.D.N.Y.
Feb. 11, 2015) (post-origination evidence).

Hunter also

evaluated the accuracy of information on the loan tapes,
observing that “[i]f the data contained on the pre-closing loan
tape differed from the information contained in the loan
origination files, the loan tape would not accurately reflect
the true credit risk” of individual loans or the loan pools.

He

found errors on loan tapes for 343 out of 723 -- approximately
48% -- of the loans he re-underwrote.
Defendants allege that Hunter’s testimony about loan tapes
is irrelevant because loan tapes were not in existence at the
time the loans were originated and because the “Offering
FHFA is litigating the accuracy of the representations in the
Offering Documents regarding the more than 15,000 loans in the
Certificates’ SLGs based on a sample of 796 loans, of which only
723 had sufficient data for Hunter’s re-underwriting.
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3

Documents make no representations about the loan tapes or loanlevel information.”

The loan tapes, however, contain

information relevant to the misrepresentations alleged by FHFA.
Data taken from the loan tapes were used to calculate statistics
in the Collateral Tables in the Prospectus Supplements.

The

data were also used by credit agencies in evaluating what rating
would be assigned to the Certificates.

The Prospectus

Supplements represented that the Certificates at issue “will not
be offered unless they receive ratings at least as high” as AAA
or its equivalent.

CONCLUSION
Defendants’ January 8 motion to exclude Hunter’s testimony
about pre-closing loan tape discrepancies is denied.
SO ORDERED:
Dated:

New York, New York
February 12, 2015
__________________________________
DENISE COTE
United States District Judge

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