NEW YORK NCUA has opposing a proposed bankruptcy reorganization for Ally Financial, General Motors’ one-time subprime lender known as Residential Capital, saying the plan does not offer enough compensation for the $600 million of claims the agency has for ResCap’s sale of more than $600 million of mortgage-backed securities to U.S. Central FCU and WesCorp FCU.
The same MBS are also subject to civil suits NCUA has filed in California against Goldman Sachs and in Kansas against RBS Securities, giving NCUA two shots at recovering on the faulty mortgage securities that helped sink the two corporate giants.
WesCorp bought 10 of the MBS certificates in dispute for $623 million and U.S. Central bought one for $20 million. Laura Neish, a New York lawyer representing NCUA in the bankruptcy, told the Credit Union Journal yesterday that ResCap originated the loans that were eventually packaged as MBS by Goldman Sachs and RBS Securities.
In an Aug. 5 filing related to the huge ResCap bankruptcy, one of the biggest in U.S. history, NCUA said the bankruptcy plan contains a “draconian” reduction in terms for unsecured creditors, such as bond holders. “The Proposed Plan includes a “Global Settlement” that was reached through a highly confidential negotiation and mediation in which only a small number of creditors participated,” said NCUA in its filing.
NCUA worries that its claims may be considered subordinated and they receive nothing in the end. The credit union regulator objected to proposed disclosures in the case because the disclosures do not set a recovery schedule for it and other bondholders. One part of the disclosure suggests that unsecured creditors, like NCUA, could receive as little as 9% of their claims.
The ResCap bankruptcy is among more than a dozen litigations NCUA is involved in its efforts to recover for the billions of dollars in losses reported by U.S. Central, WesCorp and three other corporate failures, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU. The defendants include most of the biggest Wall Street banks, like JP Morgan Chase, UBS, Credit Suisse, Barclays Capital, as well as Goldman Sachs and RBS, and several defunct banks, Wachovia, Washington Mutual and Bear Stearns. NCUA has reached out of court settlements with Citicorp, HSBC and Deutsche Bank on separate corporate credit union claims.