By Evan Weinberger
September 6, 2011
Under Section 11, The FHFA merely has to argue that misrepresentations existed, said Ronald Colombo, a professor at Hofstra University School of Law.
“In that case, you don’t have to show that you relied upon it,” he said. “You just have to show that there were false statements.”
The key questions will be what did Fannie Mae and Freddie Mac know about the securities, and when did they know it, Colombo said. If the banks are able to determine that the two enterprises were aware of the deficiencies in the underlying mortgages before they invested, the FHFA’s complaints could be in trouble.
“A defense available to the banks is to argue that Fannie and/or Freddie knew about the misstatement at the time it was made,” Colombo said. “Thus, Fannie and Freddie’s knowledge will be a critical element of the banks’ defense.”
Read the full article at law360.com.