WICHITA, Kan. NCUA opened a new battle with Wall Street this afternoon by filing a new suit over the sale of faulty mortgage-backed securities to the failed corporates—the third one naming JP Morgan Chase as the defendant and ninth suit against a Wall Street entity.
The latest suit is over MBS sold to U.S. Central FCU, WesCorp FCU and Southwest Corporate FCU by Washington Mutual Bank, the failed banking giant that was acquired with all of its liabilities by JP Morgan in 2008. NCUA has also filed suit against JP Morgan for MBS sold to the corporates by Bear Stearns & Co., the investment bank it acquired in 2008, as well as MBS sold to the corporates by Morgan’s own investment bankers. In all, NCUA is seeking recompense from JP Morgan for almost $7 billion of MBS that went sour soon after they were sold to the now-failed corporates.
The corporates were bankers’ banks for credit unions and provided wholesale services like check clearing, emergency loans and investments for regular credit unions. U.S. Central, which at one-time had $52 billion in assets, was the corporate for other corporate credit unions, similar to a central bank for credit unions. WesCorp., based in the Los Angeles suburb of San Dimas, Calif, was the next biggest, with $34 billion of assets at one time. Southwest had more than $14 billion at its peak.
“The damage caused by the actions of firms like Washington Mutual has been extremely expensive to contain and repair, and that job isn’t finished, yet,” said NCUA Chairman Debbie Matz.
NCUA has now filed suits against nine Wall Street banks—including the three defunct institutions of WaMu, Bear Stearns and Wachovia (now a unit of Wells Fargo)—claiming the banks violated their own underwriting standards by packaging subprime mortgages into MBS that failed soon after they were purchased by U.S. Central and WesCorp and Southwest Corporate, as well as Members United Corporate FCU and Constitution FCU.
Other Wall Street banks targeted in NCUA suits are: Goldman Sachs, RBS Securities, UBS Securities, Credit Suisse Securities and Barclay’s Capital. Three other Wall Street banks, Citigroup, HSBC and Deutsche Bank Securities, have avoided civil litigation by agreeing to out-of-court settlements paying NCUA a total of $170 million to settle similar claims over the corporate failures.
NCUA is said to be reviewing an additional suit against Bank of America, which acquired Countrywide Financial, the source of billions of dollars of faulty MBS bought by WesCorp.
In liquidating the five corporate failures NCUA was left with $50 billion of mortgage- and other assets-backed securities on which it projects losses of as much as $20 billion. NCUA hopes to recoup some of those losses through its civil suits against the Wall Street banks.
The latest suit, like most of the others, was filed in the U.S. District Court for the District of Kansas, which has jurisdiction over the Lenexa, Kan.-based U.S. Central.