FEDERAL HOUSING FINANCE AGENCY, Plaintiff,
v.
NOMURA HOLDING AMERICA, INC., et al., Defendants.
No. 11cv6201 DLC.
United States District Court, S.D. New York.
Signed May 11, 2015.
Philippe Z. Selendy, Richard I. Werder, Jr., Jonathan B. Oblak, Sascha N. Rand, Manisha M. Sheth, Andrew R. Dunlap, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, Richard A. Schirtzer, Quinn Emanuel Urquhart & Sullivan, LLP, Los Angeles, CA, Jon Corey, Quinn Emanuel Urquhart & Sullivan, LLP, Washington, D.C., for plaintiff Federal Housing Finance Agency.
David B. Tulchin, Steven L. Holley, Bruce E. Clark, Bradley A. Harsch, Katherine J. Stoller, Sullivan & Cromwell LLP, New York, NY, Amanda F. Davidoff, Sullivan & Cromwell LLP, Washington, D.C., for defendants Nomura Holding America, Inc., Nomura Asset Acceptance Corp., Nomura Home Equity Loan, Inc., Nomura Credit & Capital, Inc., Nomura Securities International, Inc., David Findlay, John McCarthy, John P. Graham, Nathan Gorin, and Dante LaRocca.
Thomas C. Rice, Andrew T. Frankel, Alan Turner, Craig S. Waldman, Minta Nester, John Robinson, Simpson Thacher & Bartlett LLP, New York, NY, for defendant RBS Securities Inc. (f/k/a Greenwich Capital Markets, Inc.).
OPINION & ORDER
DENISE COTE, District Judge:
| Table of Contents |
| PROCEDURAL HISTORY | 453 |
| BACKGROUND | 458 |
| I. | RMBS | 458 |
| A. | Originating a Residential Mortgage Loan | 458 |
| 1. | Credit and Capacity | 458 |
| 2. | Collateral | 460 |
| B. | Overview of the Securitization Process | 462 |
| 1. | The Sponsor | 463 |
| 2. | The Depositor | 463 |
| 3. | The Underwriter | 463 |
| 4. | The Servicer | 463 |
| C. | Structure of an RMBS Instrument and Credit Enhancement | 464 |
| 1. | Subordination | 464 |
| 2. | Overcollateralization | 464 |
| D. | Securing a Credit Rating | 464 |
| E. | “Scratch–and–Dent” Loans | 465 |
| F. | RMBS Market Dynamics | 466 |
| II. | The Seven At–Issue Securitizations | 466 |
| A. | Principal and Interest Payments | 468 |
| B. | Age of Supporting Loans | 468 |
| C. | The Certificates' Credit Enhancements | 469 |
| III. | Due Diligence | 469 |
| A. | Nomura's Due Diligence | 470 |
| 1. | Bidding Process | 471 |
| 2. | The Diligence Group | 471 |
| 3. | Credit & Compliance Due Diligence | 472 |
| a. | Sampling | 473 |
| b. | Instructions to Vendors | 473 |
| c. | Credit and Compliance Vendor Procedures | 474 |
| d. | Nomura's Review of Vendors' Results | 475 |
| e. | Ignored Warning Signs | 477 |
| 4. | Valuation Due Diligence | 478 |
| a. | Valuation Due Diligence Vendors | 478 |
| b. | Nomura Reviews Results; Broker Price Opinions | 479 |
| 5. | Reviews | 479 |
| 6. | Purchasing the Loans | 480 |
