By Nate Raymond
NEW YORK (Reuters) - Former Fannie Mae (OB:FNMA) CEO Daniel Mudd testified on Tuesday in a $1 billion civil trial over losses the company suffered on mortgage-backed securities and said it did not predict the severe decline in U.S. housing prices during the financial crisis.
Mudd appeared in Manhattan federal court after being subpoenaed by Nomura Holdings Inc (T:8604) and Royal Bank of Scotland Group Plc (L:RBS) to testify in a trial pursued by Fannie's conservator, the Federal Housing Finance Agency.
His testimony came as the defense sought to show that any losses Fannie Mae and Freddie Mac suffered on the $2 billion in securities at issue were caused not by any false statements the banks made but by the collapse in the housing market.
Mudd, who left Fannie Mae in 2008 following its government takeover, told a lawyer for Nomura that macroeconomic factors, including housing prices, were among the factors that could have an impact on those investments.
Asked if Fannie Mae had been able to predict the housing market decline, Mudd said the company's predictions "undershot" what ultimately took place.
"Did anyone at Fannie Mae when you were CEO predict the depth and extent of the housing price decline in the United States?" asked David Tulchin, a lawyer for Nomura.
"Not to my knowledge," Mudd said.
The case is the first to reach trial of 18 lawsuits the regulator filed in 2011 over some $200 billion in mortgage-backed securities that various banks sold Fannie Mae and Freddie Mac.
The FHFA, which is seeking $1.1 billion in the trial, previously obtained nearly $17.9 billion in settlements with banks, including Bank of America Corp (N:BAC), JPMorgan Chase (N:JPM) and Deutsche Bank (DE:DBKGn).
Those deals followed a series of adverse rulings by U.S. District Judge Denise Cote, who is overseeing the non-jury trial.
The FHFA says of the loans underlying the $2 billion in securities Fannie and Freddie bought from Nomura, 68.6 percent had underwriting defects. Nomura, the deals' sponsor, and RBS, which underwrote three of the seven, deny wrongdoing.
After leaving Fannie Mae, Mudd became chief executive of hedge fund Fortress Investment Group LLC (N:FIG).
But he resigned in 2012 after the U.S. Securities and Exchange Commission accused Mudd and two other Fannie Mae executives of misleading investors about the company's exposure to risky mortgages. That lawsuit remains pending.
The case is Federal Housing Finance Agency v Nomura Holding America Inc, U.S. District Court, Southern District of New York, No. 11-06201.