Federal Housing Finance Agency v. Nomura Holding America, Inc. et al
Filing
1436
MEMORANDUM OPINION AND ORDER: IT IS HEREBY ORDERED that defendants' hearsay objection to the documents appearing on the "Sample Loan Files" tab of FHFA's exhibit list is overruled. (Signed by Judge Denise Cote on 3/13/15) (sr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
FEDERAL HOUSING FINANCE AGENCY,
:
:
Plaintiff,
:
:
-v:
:
:
NOMURA HOLDING AMERICA, INC., et al.,
:
:
Defendants.
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:
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11cv6201 (DLC)
Memorandum Opinion
and Order
DENISE COTE, District Judge:
FHFA seeks to offer the Sample Loan Files (“Files”) in this
action as business records pursuant to Fed. R. Evid. 803(6).
It
contends that they are admissible as well under Fed. R. Evid.
807 and because the defendants have summarized the information
in them and offered that summary as an exhibit pursuant to Fed.
R. Evid. 1006.
Defendants note that the Files comprise
documents created by originators, borrowers, and other third
parties, and argue that an originator’s having placed a document
in a file does not itself make it a business record of the
originator.
Since the Files are admissible as business records,
there is no need to reach the other grounds tendered by FHFA.
The so-called business records exception to the hearsay
rule provides for the admissibility of:
A record of an act, event, condition, opinion, or
diagnosis if:
(A) the record was made at or near the time by -- or
from information transmitted by -- someone with
knowledge;
(B) the record was kept in the course of a regularly
conducted activity of a business . . . ;
(C) making the record was a regular practice of that
activity;
(D) all these conditions are shown by the testimony of
the custodian or another qualified witness, or by a
certification . . . ; and
(E) the opponent does not show that the source of
information or the method or circumstances of
preparation indicate a lack of trustworthiness.
Fed. R. Evid. 803(6).
The “purpose of the rule is to ensure that documents were
not created for personal purposes or in anticipation of any
litigation so that the creator of the document had no motive to
falsify the record in question.”
United States v. Kaiser, 609
F.3d 556, 574 (2d Cir. 2010) (citation omitted).
Rule 803(6)
“favors” the admission of records created and maintained by
businesses rather than their exclusion if the records have “any
probative value at all.”
Id. (citation omitted).
A business
record need not be mechanically generated to be part of a
regular practice of a business and to be admissible.
What is
important is that it was “maintained in a consistent way and was
focused on a certain range of issues that were relevant to [the]
business.”
Id.
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Nor is it necessary that the individual with the business
duty to create and maintain the record and the hearsay declarant
be the same person.
As the Court of Appeals has explained,
“[t]he person making the record need not have a duty to report
so long as someone has a duty to verify the information
reported.”
United States v. Reyes, 157 F.3d 949, 952 (2d Cir.
1998).
The Files were created by mortgage loan originators in the
course of determining whether to grant applications by borrowers
for loans.
Originators had a set of underwriting guidelines
that determined what information they had to gather and consider
when making a decision on an application.
The Files typically
contain the borrower’s written application and other documents
the originator required a borrower to submit.
The originators
collected information as well from a variety of third party
sources to determine whether the loan should be issued pursuant
to the underwriting guidelines.
The third party documents often
included credit reports for the borrower obtained from credit
reporting companies and appraisal reports generated by property
appraisers at the request of the originators.
Some of the
documents within the Files that were collected from third
parties are themselves business records; other documents may
reflect notes made by the originator of conversations with the
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borrower, the borrower’s employer, or with others from whom the
originator gathered information to assist in making its
decision.
These Files each represent an issued loan which was not
only approved by the originator but then sold to the defendants,
subject to the due diligence processes of the defendants, and
then securitized.
Critical information concerning the loans
supporting a securitization were taken from the Files and
described in the Offering Documents filed by the defendants with
the SEC.
Those Offering Documents generally described the
origination process, including the verification of the
borrower’s credit-worthiness and the adequacy of collateral.
For example, the Prospectus Supplement for NAA 2005-AR6
provides:
Generally, each borrower will have been required to
complete an application designed to provide to the
original lender pertinent credit information
concerning the borrower. As part of the description
of the borrower’s financial condition, the borrower
generally will have furnished certain information with
respect to its assets, liabilities, income . . . ,
credit history, employment history and personal
information, and furnished an authorization to apply
for a credit report which summarizes the borrower's
credit history with local merchants and lenders and
any record of bankruptcy. The borrower may also have
been required to authorize verifications of deposits
at financial institutions where the borrower had
demand or savings accounts.
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Defendants’ positions on the issues at the heart of this
litigation depend on the fact that loans underlying the
securitizations, including those represented by the Files, were
underwritten at one or more times before a loan was placed in a
securitization.
Such underwriting entailed “verify[ing] the
information” collected and maintained in the loan file.
Id.
Defendants also assert that the data taken from the Files and
described in the Offering Documents were accurate.
Indeed,
defendants have not identified any specific information or
particular category of information in the Files that they
contend is unreliable or that lacks sufficient indicia of
reliability to be admitted pursuant to Rule 803(6).
Specifically, they have “not show[n] that the source of
information or the method or circumstances of preparation
indicate a lack of trustworthiness.”
Fed. R. 803(6)(E).
The
defendants even acknowledge that the parties’ experts have
relied on the contents of the Files in forming their opinions
and concede that the contents of the Files are admissible
pursuant to Rule 803(6) when used for that purpose.
Of course, admitting the Files as business records will not
restrict the parties from offering evidence based on the Files’
contents, or in combination with other trial evidence,
suggesting that facts recited in some of the File documents are
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not truthful and accurate.
For example, the parties are
contesting whether the appraisal documents within the Files
accurately reflect the value of the appraised properties.
The
existence of that dispute, and others like it, does not affect
the admissibility of the Files as business records, and
defendants do not suggest that it does.
Accordingly, it is
hereby
ORDERED that defendants’ hearsay objection to the documents
appearing on the “Sample Loan Files” tab of FHFA’s exhibit list
is overruled.
Dated:
New York, New York
March 13, 2015
__________________________________
DENISE COTE
United States District Judge
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