NEW YORK-A federal court here ordered Standard & Poor's to produce all records related to $72 million of failed mortgage-backed securities CUNA Mutual Group bought from RBS Securities and any documents that may show the Wall Street investment bank's alleged efforts to coerce or pressure the rating agency into providing high ratings on the doomed MBS.
The CUNA Mutual suit is among a number of civil actions questioning the role of the ratings agencies in the sale of billions of dollars of faulty MBS during the mortgage meltdown. The U.S. Department of Justice is suing S&P over ratings it provided for failed mortgage bonds sold by Wall Street banks to corporate credit union giant WesCorp FCU, and Eastern Financial Florida CU, two of the biggest credit union failures ever.
The ruling by the U.S. District Court for the Southern District of New York resolves a motion to compel filed by CUNA Mutual, which is trying to force RBS to buy back the failed bonds it sold to its CMFG life Insurance Co., CUMIS Insurance Society and MEMBERS Life Insurance Co. subsidiaries.
The credit union insurer had filed a similar motion to compel against Fitch Ratings that also resulted in the production of volumes of records related to the failed investments, and Watterson Prime LLC, one of the firms that provided corroboration that mortgages packed into the mortgage-backed securities and sold by RBS Securities to CUNA Mutual followed preapproved guidelines for assets to be included in the mortgage bonds.
RBS, which was nationalized by the British government after its 2007 failure, is also being sued by NCUA for billions of dollars in faulty MBS it sold to WesCorp and U.S. Central FCU.
At Heart of Lawsuit
CUNA Mutual filed suit last year in the U.S. District Court for the Western District of Wisconsin, claiming the Wall Street bank packed the MBS 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.
In its suit, CUNA Mutual claims the bankrupt lenders made misrepresentations to RBS about the loan underwriting standards and the nature of the collateral backing the loans, which the Wall Street bank is adjudicating on its own with the remnants of those lenders.
