ALEXANDRIA, Va. NCUA this morning announced a $165 million settlement with Bank of America over claims that mortgage giant Countrywide, which BofA acquired in 2008, sold faulty mortgage-backed securities to failed corporate credit union giants U.S. Central FCU and WesCorp FCU.
Countrywide, based in Calabasas, California, an hour’s drive from San Dimas-based WesCorp., was the one-time $34 billion corporate’s biggest trading partner and sold WesCorp billions of dollars of MBS, according to a review conducted by NCUA’s Office of the Inspector General.
This morning's settlement is the fourth related to the bailout of five failed corporates, which is projected by NCUA to cost around $16 billion. In separate cases Deutsche Bank Securities agreed to pay $145 million, Citibank $20.5 million and HSBC $5.25 million.
“We have a statutory obligation to secure recoveries for credit unions and ensure that consumers remain protected,” said NCUA Chairman Debbie Matz. “We will continue to expend every possible effort to fulfill that important responsibility.”
NCUA still has civil lawsuits pending against many of the biggest Wall Street banks regarding their sale of MBS to the failed corporates, which held $50 billion worth of MBS when they were taken over, then liquidated by NCUA. The defendants in the suits include: JP Morgan Chase, Goldman Sachs, Credit Suisse, Barclay’s Capital, RBS Securities, UBS Securities and three defunct firms, Bear Stearns and Washington Mutual, now both owned by JP Morgan, and Wachovia, now a unit of Wells Fargo. NCUA has also filed $300 million in claims in bankruptcy court against Residential Capital, the subprime mortgage arm of General Motors, over MBS ResCap sold to U.S. Central and WesCorp.
NCUA took both U.S. Central and WesCorp under conservatorship in March 2009 and liquidated them over the following year. The failure of U.S. Central is projected to cost $5 billion and of WesCorp as much as $7 billion, which is being paid by credit unions through annual assessments charged by NCUA.
WesCorp was a regular conduit for the billions of dollars in subprime and other questionable mortgage products originated at Countrywide, which was the biggest mortgage lender in the country when it was acquired by BofA. NCUA’s report found that not only was Countrywide the dominant originator and servicer of mortgages used to create the WesCorp MBS that would eventually prove toxic, but also that Countrywide-originated loans were dominant in the MBS acquired by WesCorp from other issuers.
The NCUA report showed the multitude of risky mortgages, known as subprime, Atl-A, no-doc (for no documentation), “silent second,” and “scratch and dent” loans that Countrywide originated in its overheated home California market, then repackaged into mortgage securities that were ultimately purchased by WesCorp and other institutional investors.
