One of the more opaque moves by the Federal Housing Finance Agency when it sued 18 of the world’s largest financial institutions was filing 13 of the cases in New York federal court, four in New York state court, and one for good measure in Connecticut. Court papers show that the four state court suits against Ally Financial Inc., Countrywide Financial Corp., Morgan Stanley and General Electric Co. have now been removed to the Southern District of New York.
On Sept. 2, the housing agency sued 17 banks for allegedly misrepresenting the quality of $200 billion worth of mortgage-backed securities that they sold to Fannie Mae and Freddie Mac (an additional suit against UBS Americas Inc. was filed in late July). In seeking removal, the banks argued that the Southern District has original jurisdiction because the suits are “related to” pending Title II bankruptcy proceedings. These proceedings involve entities that originated, purchased or resold some of the mortgages at issue, and against which defendants have claims for indemnification and/or contribution. The defendants also pointed out that the 13 cases in federal court have claims that are “substantially identical” to their own.
