SEATTLE, Wash. – CUNA Mutual Group asked a federal court here to enforce a subpoena that would produce due diligence documents related to $72 million in failed residential mortgage-backed securities for which it is seeking recovery.

Bellevue-based Watterson Prime LLC is one of the firms that provided corroboration that mortgages packed into the MBS sold by RBS Securities to CUNA Mutual followed preapproved guidelines for assets to be included in the mortgage bonds. Watterson Prime, which has been cited in numerous other MBS suits, has resisted subpoenas issued by CUNA Mutual and denied all requests for documents.

CUNA Mutual has filed suit in federal court in Wisconsin, asking the court to order the Wall Street bank to buy back $72 million in failed MBS it sold to the credit union insurer’s MEMBERS’s Life Insurance Co. and CUMIS Insurance Society units.

The suit, in the U.S. District Court for the Western District of Wisconsin, claims the Wall Street bank packed 10 RMBS containing 15 certificates with subprime mortgage loans originated by five lenders that have since filed for bankruptcy and inflated the value of the mortgages in order to sell them to investors. The lenders, all of whom have filed Chapter 11 bankruptcy over the past few years, are Washington Mutual, First Magnus Financial Corp., Delta Funding, New Century Mortgage Corp., and Fremont Investment & Loan.

A key issue in the suit is whether RBS engaged in proper due diligence regarding the mortgages underlying the MBS it sold to CUNA Mutual. In responses to the suit, RBS identified several third party companies it hired to perform due diligence on the loans, Patterson prime, the Clayton Group and the Bohan Group. CUNA Mutual disputes RBS’s assertions that proper due diligence was performed on the bonds. CUNA Mutual says that federal investigations have shown that Wall Street banks routinely ignored red flags cited by due diligence firms in the creation of MBS. “Of course, the investors were not told this,” said CUNA Mutual in its legal action. “In essence, the purported due diligence was a sham.”

CUNA Mutual delivered a subpoena to Watterson Prime on September 24 and gave the company until October 9 to produce the results of due diligence reports provided to RBS on the loans, all communications regarding the due diligence and communications with various rating agencies. But the company never responded and never produced the documents, according to CUNA Mutual.

 

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