Merrill Lynch, part of Bank of America Corp , on Thursday lost its bid to dismiss a federal regulator's lawsuit accusing it of misleading Fannie Mae and Freddie Mac into buying billions of dollars of risky mortgage debt.
U.S. District Judge Denise Cote in Manhattan said the Federal Housing Finance Agency, which had sued over roughly $24.9 billion of securities, may pursue fraud claims over Merrill's representations in offering materials regarding mortgage underwriting standards.
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The judge also allowed claims under Washington, D.C. securities law, as well as claims for punitive damages and to rescind suspect mortgage transactions. She dismissed some fraud claims.
Bank of America spokesman Lawrence Grayson declined to comment.
Fannie Mae and Freddie Mac were seized by federal regulators on September 7, 2008, and the FHFA became their conservator.
Last year, that agency filed 18 lawsuits over mortgage losses suffered by Fannie Mae and Freddie Mac on roughly $200 billion of securities, including $57.5 billion sponsored or underwritten by Bank of America and its Merrill and Countrywide units.
A trial is scheduled for June 2, 2014.
Cote had previously refused to dismiss FHFA lawsuits against two other banks over Fannie Mae and Freddie Mac mortgage losses.
On November 5, she rejected JPMorgan Chase & Co's bid to dismiss a case over $33 billion of securities.
In May, she refused to end a case against Switzerland's UBS AG over $6.4 billion of securities.
Since buying Countrywide in July 2008 and Merrill six months later, Bank of America has lost nearly $40 billion on mortgage litigation and investor demands to buy back soured loans, Credit Suisse said on October 5.
On October 24, the U.S. Department of Justice filed its own civil fraud lawsuit accusing the Charlotte, North Carolina-based lender of causing more than $1 billion of taxpayer losses by selling toxic mortgage loans to Fannie Mae and Freddie Mac.
Bank of America said at the time that it had "stepped up and acted responsibly to resolve legacy mortgage matters."
The case is Federal Housing Finance Agency v. Merrill Lynch & Co et al, U.S. District Court, Southern District of New York, No. 11-06202.
(Additional reporting by Nate Raymond; Editing by David Gregorio)