DENVER-A federal appeals court has scheduled oral arguments for May 8 in a key case that will help determine the success of billions of dollars in claims by NCUA against Wall Street banks for the sale of mortgage-backed securities to the failed corporate CUs.
The case pits NCUA against two Wall Street banks, RBS Securities and Wells Fargo's Wachovia Capital, but the fate of billions in claims against virtually every other major Wall Street bank also rests on the decision.
The Wall Street banks say NCUA waited too long to file the claims, which amount to almost $10 billion. NCUA says the clock did not start running on the statute of limitations for the claims until after it took over the failed corporates: U.S. Central FCU, WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU. NCUA says the 1989 S&L bailout law gave it extra powers to begin the clock after the federal regulator took the failed corporates under conservatorship.
If the court, the U.S. Court of Appeals Court for the Tenth Circuit, rules for the Wall Street banks it will erase most of NCUA's claims and devastate the agency's efforts to recoup some of the projected $20 billion of losses from the corporate stabilization.
Ruling Will Be Critical
If the court rules for NCUA it will send the case back to the lower court, the federal district in Kansas where U.S. Central was based, which will review the main question in the case: whether the Wall Street banks knew the billions of MBS they created from subprime loans were doomed to fail.
The list of defendants in 10 separate suits is long, including JP Morgan Chase, UBS Securities, Credit Suisse, Barclay's and Goldman Sachs, but also dozens of subprime lenders who provided the loans the Wall Street banks packaged into mortgage securities.
The banks are watching the appeal closely because it also could determine the fate of billions of dollars worth of separate claims brought by Fannie Mae, Freddie Mac, the Federal Home Loan Banks and many other institutional investors.
The stakes are so big the Securities Industry and Financial Markets Association (SIFMA), Wall Street's main lobbying group, has filed an amicus brief on behalf of the banks. In its brief, the lobby group told the court the relevant statutes of limitation had expired for the most of the securities claims brought by NCUA, many as long as six or seven years before the suits were filed.
More Than 20 Suits Pending
"This case has far-reaching significance not only for SIFMA's members but also for the securities industry as a whole," said the group, noting that NCUA, the FDIC and the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, have more than 20 suits pending concerning more than $200 billion worth of securities.
In this case, RBS Securities, Wells Fargo's Wachovia Capital Markets, Nomura Home Equity Loan, Financial Asset Securities and NovaStar Mortgage Funding are being sued by NCUA on claims they violated their own underwriting standards by packaging faulty subprime loans into some $4 billion of MBS that went sour soon after they were purchased by U.S. Central FCU and WesCorp FCU.
