Court Accepts the Mortgage Expert’s Opinion on the OPERS’ Primary Fraud Theory
Posted on March 25, 2025 by Expert Witness Profiler
Defendant Federal Home Loan Mortgage Corporation (“Freddie Mac”) offered Dr. Chudozie Okongwu, a mortgage market expert, to discuss the mortgage and subprime markets and the credit crisis between August 1, 2006, and November 20, 2007 (the “Relevant Period”). The lawsuit concerns whether “Freddie Mac concealed its overextension in the nontraditional mortgage market—generally composed of instruments known as subprime mortgages or low credit and high risk instruments—and its materially deficient underwriting, risk management and fraud detection practices through misstatements and omissions to investors.”
According to Ohio Public Employees Retirement System (“OPERS”), the central issue is not the definition of subprime or the performance of Freddie Mac’s loans relative to others, but rather if Freddie Mac’s public disclosures about its portfolio, underwriting, credit risk, and capital position were misleading and fraudulent. OPERS alleged Freddie Mac was undertaking more risk than it revealed. Freddie Mac retained Okongwu to conduct economic and financial analysis regarding some of OPERS’ claims. His analysis aimed to refute OPERS’ primary-fraud theory, asserting that Freddie Mac’s Caution Loans did not carry “subprime risk” because “[t]he Caution Loans have different characteristics to the CoreLogic Subprime Loans and perform differently than the CoreLogic Subprime Loans. In particular, the serious delinquency rates of the Caution Loans were substantially lower than those of the CoreLogic Subprime Loans at both Q3 2007 and Q3 2008.”
OPERS contended that Okongwu’s report, testimony, and purported opinions are inadmissible as expert evidence due to being irrelevant, unreliable, unhelpful, confusing, unfairly prejudicial, and failing to meet the necessary threshold.
Mortgage Expert Witness
Dr. Chudozie Okongwu is a Ph.D. economist and consultant with extensive experience in finance, economics, and valuation. He possesses expertise in the mortgage market, the evolution of the credit crisis during the Relevant Period, residential-mortgage products, and mortgage-backed securities (including their sensitivity to housing price and interest rate changes). He also has significant experience using econometric models for analyzing residential-mortgage products.
Discussion by the Court
Okongwu’s Proposed Testimony on the First Two Topics in his Amended Expert Report about Background Facts of the Mortgage and Subprime Markets is Irrelevant and Unreliable
OPERS contended that all of Okongwu’s planned testimony concerning the background of the mortgage and subprime markets in the initial two sections of his revised expert report was irrelevant and unreliable. However, the Court disagreed with OPERS’ central argument that Okongwu’s opinions on these first two topics were not suitable for expert testimony.
The Court reasoned that this proposed testimony covers specialized areas related to events in the mortgage market during the financial crisis and OPERS’ claim that Freddie Mac did not disclose its involvement with subprime loans—details that are beyond the common understanding of an average juror. Furthermore, the Court found Okongwu’s testimony on these first two topics in his amended expert report to be reliable. His methodology was thoroughly explained, and he clearly stated the foundation for all his provided definitions. The Court also noted Okongwu’s expertise in residential-mortgage products and mortgage-backed securities (including their sensitivity to changes in housing prices and interest rates), along with his substantial experience in using econometric models to analyze residential-mortgage products.
Okongwu’s Prepared-Solely-for-Litigation Proposed Testimony about what Freddie Mac Disclosed Between 2005 and 2008 is Irrelevant and Unreliable
Okongwu’s analysis focuses on critical parts of Freddie Mac’s extensive disclosures to investors, which cautioned about credit risks leading up to the financial crisis. OPERS argued that Okongwu’s proposed testimony about Freddie Mac’s disclosures between 2005 and 2008—prepared solely for this litigation—is irrelevant, unreliable, and that he lacks the necessary qualifications to testify on this subject. However, the Court recognized that what OPERS described as a simple factual account is actually an independent analysis of substantial materials covering specialized topics. The Court noted that Okongwu has extensively published on the subjects relevant to his proposed testimony in this case. Consequently, the Court found Okongwu’s testimony on Freddie Mac’s extensive disclosures to be reliable, as he reviewed and analyzed these disclosures regarding credit risks within the context of the prevailing market conditions, drawing upon his expertise.
Okongwu’s Proposed Testimony about Freddie Mac’s Caution Loans being Different from the CoreLogic Subprime Loans is Irrelevant and Unreliable
Okongwu performed an empirical study employing specific analytical methods to compare millions of these two loan categories, ultimately concluding that OPERS’ “primary fraud” theory is flawed. His analysis indicated that Caution Loans and subprime loans were not the same, with Freddie Mac’s Caution Loans demonstrating significantly better performance. The Court ruled that Okongwu’s analysis comparing caution loans and subprime loans is admissible, relevant, and will aid the fact-finder in comprehending and deciding on OPERS’ primary-fraud theory.
The Court also found Okongwu’s testimony analyzing Freddie Mac Caution Loans and comparing them to the CoreLogic Subprime Loans to be reliable. However, OPERS argues that Okongwu’s comparison was incomplete, as he did not examine “the totality of Freddie Mac’s subprime-like loans” because the Caution Loans he analyzed originated from the “Loan Prospector automated underwriting system . . ., which applied higher underwriting standards than other channels from which Freddie Mac purchased loans. . . .” The Court determined that Okongwu’s proposed testimony regarding the difference between Freddie Mac’s Caution Loans and the CoreLogic Subprime Loans is a suitable topic for examination through direct and cross-examination, but does not warrant excluding the proposed testimony.
Held
The Court denied OPERS’ motion to strike and exclude the testimony of Dr. Chudozie Okongwu.
Key Takeaway:
The Court operates with wide latitude in deciding how to test an expert’s reliability, and thus has considerable leeway in deciding how to go about determining whether particular expert testimony is reliable.
Case Details:
| Case Caption: | Ohio Public Employees Retirement System V. Federal Home Loan Mortgage Corp., Et Al. |
| Docket Number: | 4:08cv160 |
| Court Name: | United States District Court for the Northern District of Ohio, Eastern Division |
| Order Date: | March 21, 2025 |
