First Horizon National Settles With FHFA for $110 Million

Not Done Yet The FHFA settled the

suit that remained of the 18 it had filed back in 2011 regarding mortgage-backed securities sold to Fannie Mae and Freddie Mac. First Horizon National agreed to pay $110 million, which is about 12.5% of the face value of the securities involved. Some of the other suits FHFA filed settled for similar percentages: JPM Chase settled for about 12.1%; Morgan Stanley for 11.8%; Deutsche Bank was slightly higher at 13.6%.

The FHFA settlements have been much higher value--like 10 to 1--than cases brought by the Department of Justice and Securities and Exchange Commission, explained Professor John C. Coffee, because the FHFA used private counsel on a type of contingency fee basis to bring the case. When bringing such complex case with the intention of being able to try them, "You need 40 or more lawyers assigned to the case," Coffee explained. "You need to do hundreds of depositions. Public enforcement agencies just cannot throw that manpower at it." What the SEC and others generally do, Coffee said, was tell companies they intend to bring charges, and then immediately initiate settlement negotiations. By bringing private counsel, the government gets the capacity to really take the cases forward, which results in bigger settlements. Coffee noted the FHFA wasn't the only government agency to use private counsel this way. Private counsel hired by the FDIC won a $168 million verdict against

. And the FDIC's private counsel won a $12 million settlement with IndyMac's former CEO, Michael Perry, who resolved the SEC's similar claims for a

. So, now that [ ] has settled, what will [remaining banks] do?