STOCK MARKET WATCH -- Thursday, 1 March 2012

[Demeter]

3. Fannie Mae, Freddie Mac, and the MBS sleeper defense

http://newsandinsight.thomsonreuters.com/New_York/News/2012/02_-_February/Fannie_Mae%2c_Freddie_Mac%2c_and_the_MBS_sleeper_defense/

The Reuters legal team is blessed with several smart young reporters with recent-vintage law degrees. So as a little test, I asked three of them -- graduates of Harvard Law School, Stanford Law School, and the University of Texas School of Law -- what they remembered about the statute of repose. Their answers were all variations on the theme of "not much." Even in a profession that prides itself on obscurity (come on, you know you do) you have to be a special kind of geek to be an expert on the statute of repose.

That, or a lawyer working on mortgage-backed securities litigation.

The statute of repose, for those of you who never went to law school or, like some of my colleagues, have plain forgotten, sets an absolute deadline for certain causes of actions. Unlike the statute of limitations, which can be extended based on agreements between the parties or certain external circumstances, the statute of repose is drawn in permanent marker: If you don't file particular claims within the specified time period, you're flat out of luck. (Here's an analysis of a pair of recent decisions holding that a Supreme Court ruling that stops the clock on the statute of limitations in certain cases doesn't apply to the statute of repose.) SEE LINK AT ORIGINAL LINK

As it happens, state and federal securities laws usually include an absolute deadline for claims under statutes of repose. That's why the defense has become so popular in mortgage-backed securities cases. Remember, there was a lag between when a lot of these notes were sold in 2005 and 2006 and when they went bad in 2008, and another lag as investors figured out how to structure suits based on securities that weren't ordinary stocks or bonds. Those years between offering dates and suit filings have turned out to be a big issue: In a major ruling in the Countrywide MBS litigation before U.S. District Judge Mariana Pfaelzer in Los Angeles, for instance, the judge held that the statute of repose on federal securities claims is inviolable, leaving Countrywide MBS investors who haven't already filed claims on notes issued before 2008 out in the cold. On Friday, Skadden, Arps, Slate, Meagher & Flom filed a new brief in what is shaping up as the fight that will make the statute of repose a household phrase. I'm kidding, but not entirely. On behalf of UBS, Skadden filed a reply to the Federal Housing Finance Authority that lays out exactly why, in the bank's view, the conservator overseeing Fannie Mae and Freddie Mac didn't sue UBS for alleged MBS failings in time to comply with the statute of repose.

As I've explained, UBS is the lead case in FHFA's MBS onslaught against more than a dozen MBS issuers, so Skadden's argument on the statute of repose will have huge consequences. Essentially, the firm contends that when Congress enacted the law that created FHFA and sent Fannie Mae and Freddie Mac into conservatorship, it explicitly extended the statute of limitations on Fannie and Freddie's state law tort and contract claims, but did not address the statute of repose at all. And because the FHFA waited at least four years to sue UBS over mortgage-backed securities purchased by Fannie and Freddie, its federal securities claims should be barred the three-year statute of repose, according to Skadden....MORE

WHEW! ANOTHER FINE MESS....