Judge Rejects FDIC Lawsuits Over Soured Mortgage Debt

The Federal Deposit Insurance Corporation (FDIC) suffered an embarrassing courtroom defeat when a federal judge dismissed lawsuits brought by the agency against three major banks in a case relating to the failed sale of mortgage debut by a defunct Texas bank.

According to a Reuters report, U.S. District Judge Andrew Carter in Manhattan said the FDIC, despite being the receiver for Austin-based Guaranty Bank, did not have the standing to bring the lawsuits after selling the mortgage debt through a March 2010 re-securitization transaction. The FDIC had sought to recoup more than $695 million from Citigroup Inc., Bank of New York Mellon Corporation and U.S. Bancorp, which the agency accused of failing ensure proper underwriting on mortgages backing $2.7 billion of securities bought by Guaranty. Guaranty had roughly $13 billion of assets before it was shut down in August 2009, and the FDIC estimated that the bank's failure would put a $3 billion dent in deposit insurance fund.

"Any claims that plaintiff might have held, traveled with the bonds when they were transferred," Carter wrote in his decision. The FDIC did not publicly comment on the judge’s ruling.