Banks seek to overturn mortgage ruling

NEW YORK ­­— The nation’s largest banks, facing a torrent of lawsuits over shoddy mortgage securities, are pushing to overturn a series of tough rulings in an important case.

In a rare move, 15 banks — including Bank of America, Citigroup, JPMorgan Chase, and UBS — filed a motion in US District Court in Manhattan late Tuesday night to throw out a series of decisions by Judge Denise L. Cote, according to a ccourt filing. In doing so, the financial institutions are aiming to broaden the amount of evidence they can gather in the hopes of quashing the lawsuit.

The rulings, the banks argue, are so ‘‘gravely prejudicial’’ that they had no choice, a step that was not ‘‘taken lightly.’’


The case could have costly implications.

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In 2011, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, accused the banks of duping the housing giants into buying $200 billion of mortgage securities that ultimately imploded during the financial crisis.

On Wall Street, the lawsuit is considered a critical litmus test for how successful the banks will be in stanching their losses from the mortgage litigation.

In November, Cote denied requests by the banks to toss out the lawsuit altogether.

Now, the banks are trying to reverse her rulings that limit the amount of so-called discovery they can collect, including depositions and internal documents.


The decisions, according to the court filing, unfairly constrict the banks, undercut their ability to fight the lawsuit and is ‘‘grossly inequitable.’’

In an order in May 2012, Cote ruled that the banks could take a total of only 20 depositions, or interviews, from current and former employees at Fannie Mae, Freddie Mac, and the housing agency. The court filing claims that the limited scope of the interviews leaves the banks without a full understanding of Fannie and Freddie’s operations.

By comparison, under the judge’s ruling, the Federal Housing Finance Agency can gather 400 depositions.

The ruling also prevents the banks from gathering additional information from a major unit within the mortgage finance firms that evaluated home loans before they were packaged and diced into the complex investments.

Cote reaffirmed the rules governing discovery in a separate order filed last month. In that order, the judge reiterated that ‘‘defendants as a group may take 20 depositions of ­FHFA.’’ Even the housing agency proposed a more generous deposition cap of 40 total, the banks say.


The banks assert in the court filing that the limitations will hobble their defenses while unfairly letting the housing agency proceed with its case. The decision, the filing says, will ultimately force the banks to settle.

Cote did not respond to requests for comment.

In recent years, the banks have been hit by a raft of lawsuits filed by federal and state authorities, as well as private investors.

The lawsuits center on a dismal chapter in banks’ histories when Wall Street sold billions of dollars of subprime mortgages that soured, causing the banks and investors to incur vast losses.

In the latest salvo, Citigroup agreed earlier this month to pay $730 million over accusations that the bank deceived investors in securities backed by mortgage loans. Citigroup did not admit wrongdoing.