U.S. Markets closed

Nomura blasts U.S. agency at mortgage bond trial's close

(Adds details of FHFA's arguments at trial)

By Nate Raymond

NEW YORK, April 9 (Reuters) - A lawyer for Nomura Holdings Inc argued on Thursday that a U.S. regulator relied on "voodoo science" to pursue claims that the bank made false statements in selling $2 billion in mortgage-backed securities to Fannie Mae and Freddie Mac.

David Tulchin, Nomura's lawyer, urged a Manhattan federal judge to reject the Federal Housing Finance Agency's bid to make the Tokyo-based bank and Royal Bank of Scotland Group Plc pay $1.1 billion over securities they sold ahead of the 2008 financial crisis.

During closing arguments in the nonjury trial, Tulchin told U.S. District Judge Denise Cote that the FHFA's claimed losses were not the banks' fault and were due to overall market conditions at the time of the crisis.

"Its losses on these seven certificates were caused not by any misstatements but by macroeconomic factors, most importantly the decline in housing prices," he said.

But Philippe Selendy, the FHFA's lawyer, said the period ahead of the downturn was also characterized by banks industry-wide misrepresenting the quality of the mortgage-backed securities they were selling.

Selendy said the "colossal incompetence" and "deceit" of Nomura and RBS was the reason offering documents for the securities they sold were filled with misrepresentations.

"This trial has finally opened a window into the practices of the mortgage industry that helped to create the financial crisis," he said.

The lawsuit is the first to reach trial out of 18 the regulator filed in 2011 over some $200 billion in mortgage-backed securities that various banks sold Fannie Mae and Freddie Mac.

The FHFA previously obtained nearly $17.9 billion in settlements with banks including Bank of America Corp, JPMorgan Chase & Co and Deutsche Bank AG. Those deals followed a series of adverse rulings by Cote.

The FHFA says Nomura, the securities' sponsor, and RBS, which underwrote four of the deals, misstated important details about the mortgages underlying more than $2 billion in securities sold to Fannie and Freddie.

The FHFA said 68.6 percent of the loans underlying the securities had underwriting defects. Nearly a third had false loan-to-value ratios, while 13.1 percent were underwater from the start, it said.

But Tulchin argued the FHFA had introduced little testimony to back up its claims, instead relying on paid expert witnesses using "voodoo science" and questionable methodologies to analyze the securities.

"Cases that depend on paid experts hired for litigation can often be artificial," he said.

The case is Federal Housing Finance Agency v Nomura Holding America Inc, U.S. District Court, Southern District of New York, No. 11-06201.

(Editing by Noeleen Walder, Ted Botha and Matthew Lewis)