NEW YORK NCUA filed additional claims against underwriters of investments that led to the failure of the corporate credit unions, the latest one naming Morgan Stanley & Co. and eight other banks over $2.4 billion of faulty mortgage-backed securities sold to Southwest Corporate FCU and Members United Corporate FCUs.
The latest suit make similar claims as a dozen other suits brought by NCUA against the biggest banks, namely that the banks negligently packaged subprime loans into MBS that quickly soured, causing the two $14 billion corporates to fail in September 2010.
The new suit differs in that it is the first time NCUA has brought the claims to the federal court in New York, which has jurisdiction over Wall Street. The other suits were either brought in Kansas, where U.S. Central FCU, the one-time $52-billion central bank for credit unions, was based, or in California, home to the one-time $34-billion WesCorp FCU.
“We continue to pursue accountability and recovery in the wake of billions of dollars in sales of faulty securities that led to the collapse of several corporate credit unions and handed the industry the costly bill of paying for the losses,” NCUA Chairman Debbie Matz said. “All the credit unions we supervise and insure are sharing those costs. The people who are responsible should be required to shoulder that burden, as well.”
The new suit also names as defendants: Barclays, JP Morgan/Bear Stearns, Credit Suisse, Royal Bank of Scotland, UBS, Goldman Sachs, Wachovia, and Residential Funding Securities, LLC, now Ally Securities.
Five corporate credit unions failed as a result of the purchase of faulty mortgage-backed securities, which is projected to cost NCUA as much as $16 billion to resolve. The cost is being passed on to the nation’s 6,800 credit unions in the form of annual assessments.
NCUA’s complaints allege the offering documents of the securities sold to the failed corporate credit unions contained statements that were not true or omitted material facts. The originators systematically abandoned the stated underwriting guidelines in the offering documents, according to the complaints, with the result that the securities were significantly riskier than represented.