By Reynolds Holding

NEW YORK, Dec 20 (Reuters Breakingviews) - The financial and legal debacle surrounding U.S. mortgage-backed securities is already five years old. Banks, trustees and even investors had a hand in it. Focus has shifted from the original mortgage lenders to those involved in securitizing home loans and beyond. Now, with legal eagles running up against post-crisis filing deadlines, the last lawsuits are in sight. But banks and others aren't yet near to seeing the end of them - or the associated costs.

MORTGAGE LENDERS

About 850 mortgage-related cases have been filed in the United States since 2007, according to NERA Economic Consulting. Early on, the bulk of them focused on the originators, with plaintiffs targeting bad loans and lax underwriting. These types of class actions accounted for more than half the credit crisis litigation in 2007, though their share has since dwindled to about 3 percent in 2012 through June.

Shareholders and bondholders have sued the likes of Wachovia, now part of Wells Fargo, alleging they lied about underwriting standards and the quality of their loans. The Wachovia suits settled for a total of $665 million.

The Justice Department picked up some of the slack, suing lenders like MortgageIT, bought by Deutsche Bank in 2007, and Bank of America's Countrywide for pawning off dodgy mortgages on the government. Deutsche's case, which involved charges of obtaining Federal Housing Administration insurance through false certifications, settled for about $200 million in May. The suit against BofA for allegedly sticking Fannie Mae and Freddie Mac with loser loans is still pending.

Trustees have also weighed in, demanding that lenders repurchase mortgages they sold to the trusts underlying mortgage-backed securities. The claims typically charge those lenders with misrepresenting the quality of mortgages. U.S. Bank is among the trustees suing, but no settlements have yet been publicly reported.

SECURITIES PACKAGERS

As lenders reached settlements and class-action standards tightened, attention shifted to banks that created securities from residential mortgages and sold them to investors. Those banks accounted for almost 80 percent of defendants in credit crisis lawsuits filed during the first half of 2012, NERA reckons, a figure expected to grow next year as statutes of limitations approach expiration.

In three of the highest-profile cases, the Securities and Exchange Commission claimed Goldman Sachs, Citigroup and JPMorgan peddled synthetic securities, largely backed by mortgages, while failing to disclose huge bets against the same bonds. Goldman settled in 2010 for $550 million, and JPMorgan and Citi resolved their cases last year for $154 million and $285 million, respectively - though Citi's settlement is still under court review.

New York's attorney general slapped JPMorgan's Bear Stearns unit with a lawsuit in October for allegedly lying to investors about the quality of loans underlying mortgage bonds. And the SEC reached a $417 million settlement in November with JPMorgan and Credit Suisse over similar charges.

Investors have also taken action. Though the settlement isn't final, BofA last year agreed to pay $8.5 billion to BlackRock, the New York Federal Reserve and 20 other big investors that bought mortgage securities from the bank before the financial crisis. And in the biggest case filed so far, the Federal Housing Finance Agency (FHFA), conservator of Fannie and Freddie, has accused 17 banks of misrepresenting mortgages that backed some $200 billion of securities sold to the government-sponsored enterprises.

CREDIT RATING FIRMS

Though much derided for their failures of foresight, Standard & Poor's, Moody's Investors Service and Fitch Ratings have so far beaten back suits claiming they gave inflated ratings to shaky securities in exchange for lucrative fees. On Dec. 3, the U.S. Court of Appeals in Cincinnati joined two other federal appellate courts in ruling that the agencies can't be sued unless they knew the ratings, which are constitutionally protected opinions, were false.

Rating agencies accounted for a scant 3 percent of all defendants in credit crisis lawsuits this year. Absent a significant breach in their hitherto solid legal defenses, that probably won't change much.

TRUSTEES

Trustees for mortgage security issues have been legal targets as well as plaintiffs. Earlier this month, for instance, a federal judge allowed lawsuits against BofA and U.S. Bancorp, as trustees, for allegedly failing to force lenders to repurchase defective mortgages underlying securities. Bank of New York Mellon has also been sued on similar grounds.

INVESTORS

Even mortgage bond investors have been hauled into court, though sometimes it's the same firms wearing another hat. Shareholders of Freddie sued it for allegedly lying about exposure to securities based on failed subprime mortgages that cost the company, and so indirectly its owners, billions of dollars. A judge dismissed the case last year. Citigroup didn't fare as well, settling similar accusations earlier this year for $590 million.

Overall, many cases have foundered on stiff defenses, including arguments that the housing market's collapse, not identifiable wrongdoing, caused losses. Now, the passage of time is giving defendants another argument: statutes of limitations, most commonly six years for such cases, are starting to run out. Banks fighting the $200 billion FHFA case are pressing a version of that defense before the U.S. Court of Appeals in New York.

The good news for all the defendants is that that the torrent of litigation is almost over. The bad news, especially for securities packagers facing the latest wave of cases, is that it will probably get worse in 2013, as disgruntled investors rush to file suits before it's too late. That could occupy banks and their lawyers - and keep investors guessing about the potential liability - for years to come.

CONTEXT NEWS

- UBS on Nov. 26 told the U.S. Court of Appeals in New York that the Federal Housing Finance Agency waited too long to sue the bank and 16 other financial institutions for allegedly lying about some $200 billion of mortgage-backed securities sold to Fannie Mae and Freddie Mac.

- The suit may be the largest of hundreds of lawsuits seeking damages from banks and others in connection with the origination and securitization of subprime mortgage bonds. Filing deadlines, known as statutes of limitations, are beginning to expire for many such suits concerning securities that failed during the 2008 financial crisis. (The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

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