LOS ANGELES – NCUA told a federal court Friday a ruling earlier in the week in Massachusetts should support its billion-dollar lawsuits against two Wall Street banks for the sale of mortgage backed securities to failed corporate credit union giants, WesCorp FCU and U.S. Central FCU.
Like the suits in front of the California court, the action in the U.S. District Court for the Massachusetts are against RBS Securities and Goldman Sachs & Co. for MBS the two Wall Street banks created from subprime mortgages that eventually failed at alarming rates. In denying the Wall Street banks’ motions to dismiss, the Massachusetts court rejected the same arguments made by RBS and Goldman in the WesCorp and U.S. Central suits, notes NCUA.
For one thing, the Massachusetts court ruled that under the Securities Exchange Act the plaintiff in the case, Mass Mutual Insurance, need not prove that the Wall Streets banks acted with intent when they sold the faulty MBS, noted NCUA.
In denying the motion to dismiss, the Massachusetts court also ruled the assertion by the Wall Street banks that the poor loan performance of the MBS mortgages was “due solely to the economic downturn” could not be established if the motion to dismiss is upheld.
Named as co-defendants in the Mass Life suit alongside RBS and Goldman, are JP Morgan Chase, HSBC, Credit Suisse First Boston, Deutsche Bank Structured Products, DLJ Mortgage Capital, Impac Funding and GMAC’s Residential Funding Co.
In its separate suits against RBS and Goldman, NCUA claims the two Wall Street banks abandoned their own underwriting standards when they packaged billions of dollars of subprime mortgages into MBS that went sour within months of their sale to WesCorp and U.S. Central. The judge in the case has indicated he plans to rule for the motions to dismiss in the RBS suit and is expected to issue a written opinion any day.
NCUA filed motions with the court Friday in both the RBS and Goldman suits explaining the Mass Life ruling applicability to their own cases.
The Wall Street banks insist the MBS went bad because of the unprecedented climate in the mortgage meltdown of 2007 and 2008, and not because of anything they did wrong. They asserts that both WesCorp and U.S. Central were sophisticated investors who were given proper disclosures and should have knows of the risks.
The stakes in the suits—as well as three other brought by NCUA against Wall Street underwriters—are enormous as the agency is seeking as much as $2 billion to help offset the costs of the corporate bailout. The failures of WesCorp and U.S. Central are estimated to cost NCUA as much as $12 million to resolve, which is being paid for by assessments on the nation’s 7,200 federally insured credit unions. NCUA has made similar claims in the failures of Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU.
NCUA has also filed suits against JP Morgan Chase, Wells Fargo’s Wachovia Securities unit, and another one against RBS Securities. The suits also name some of the biggest subprime lenders as co-defendants: Fremont Mortgage, Long Beach Securities, American Home Mortgage, IndyMac, Greenwich Capital, Nomura Asset, Residential Funding Mortgage, Novastar and Saxon Asset.
