Editor: David Reiss
Brooklyn Law School

April 18, 2013

Judiciary’s Take on the Subprime Zeitgeist

By David Reiss

The 2nd Circuit’s opinion in FHFA v. UBS Americas Inc. et al. (April 5, 2013, No. 12-3207-cv) offers an interesting window into how at least some members of the judiciary understand the Subprime Crisis. On its face, the case was about some technical issues of procedure — whether the case was untimely and whether the FHFA lacked standing.  The Court’s reasoning, however, delved into some deep issues.

In discussing the timeliness issue, the Court concluded that given the statute’s plain language and the particular provision as a whole, “a reasonable reader could only understand” it to resolve the issue in favor of the FHFA. (17) Then, seemingly gratuitously, the Court delved into the legislative history of the statute.  But this legislative history seemed to be drawn as much from the Court’s understanding of recent events as from the record.  It wrote

Congress obviously realized that it would take time for this new agency to mobilize and to consider whether it wished to bring any claims and, if so, where and how to do so. Congress enacted HERA’s extender statute to give FHFA the time to investigate and develop potential claims on behalf of the GSEs — and thus it provided for a period of at least three years from the commencement of a conservatorship to bring suit.

Of course, the collapse of the mortgage-backed securities market was a major cause of the GSEs’ financial predicament, and it must have been evident to Congress when it was enacting HERA that FHFA would have to consider potential claims under the federal securities and state Blue Sky laws. It would have made no sense for Congress to have carved out securities claims from the ambit of the extender statute, as doing so would have undermined Congress’s intent to restore Fannie Mae and Freddie Mac to financial stability. (17-18)

I agree with the Court on the substance, but I found it interesting that certain things about the legislative history were “obvious,” certain facts “must have been evident” and alternative interpretations would make “no sense.”  I am not sure if I could go that far.

This version of legislative history does, however, reflect a view that Congress intended the Executive Branch to take extraordinary measures to hold financial institutions accountable for their role in the financial crisis.

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