Manhattan U.S. District Court Judge Denise Cote ruled Nov. 5 that JPMorgan Chase must go to trial to defend allegations levied by the Federal Housing Finance Agency that it committed fraud in the sale of residential mortgage-backed securities to Fannie Mae and Freddie Mac, National Mortgage News reported Nov. 7.

FHFA filed the lawsuit in December 2011, and it was one of 16 actions the agency has filed in Manhattan District Court charging underwriters of misconduct in the sale of securities to the two government-sponsored enterprises that the FHFA oversees.

FHFA’s filing alleged that JPMorgan Chase knowingly engaged in false representation of mortgages backing securities it sold, having failed to follow necessary underwriting guidelines and standards, including representations that borrowers had the ability to repay their loans.

JPMorgan made a motion to dismiss the case, arguing that FHFA had failed to support its claims and further noted that downgrades of the securities it was selling by ratings agencies made Fannie and Freddie aware of potential concerns as early as 2007. JPMorgan claimed the lawsuit alleged “fraud by hindsight” and contended that the FHFA filed the lawsuit too late, National Mortgage News reported.

Cote wrote in her opinion that nothing in court papers established “that (Fannie and Freddie) knew that the loans supporting these particular securitizations were so haphazardly originated as to put in jeopardy even the AAA-rated certificates they purchased.”

National Mortgage News reported that Fannie and Freddie purchased about $33 billion in residential mortgage-backed securities sponsored or underwritten by JPMorgan, Bear Stearns or Washington Mutual over a two-year period beginning in September 2005. JPMorgan purchased Bear Stearns and Washington Mutual in 2008. The value of the securities was dependent on the ability of borrowers to repay loans as well as the adequacy of their collateral in the event of a default.

Of the 103 securitizations involved in the case, JPMorgan was lead underwriter on 30, and Bear Stearns was underwriter on 38. Additional underwriters included RBS Securities, Citigroup and Goldman Sachs.

The trial date is set for June 2014.