NEW YORK Residential Capital asked a U.S. bankruptcy court here to deny a $300-million claim by NCUA related to the 2009 collapses of U.S. Central FCU and WesCorp FCU among thousands of investors who bought mortgage-backed securities from the bankrupt former subprime mortgage unit of GMAC.
ResCap rebutted NCUA’s claims that it knowingly sold faulty mortgage-backed securities to the two failed corporates and argued that NCUA waited too long to file the claims, in violation of the statute of limitations. ResCap told the court a total of 11 claims submitted by NCUA in its role as liquidating agent for U.S. Central and WesCorp should be dropped, arguing the corporates’ recklessness and a marketwide downturn not fraudulent activity by ResCap caused the MBS to fail.
ResCap notes that NCUA itself explained the corporate failures by saying “losses associated with the private label mortgage-backed securities that were held by corporate credit unions” were “caused by the overall global economic crisis that emerged in 2007.”
In its claims filed with the U.S. Bankruptcy Court in New York, NCUA alleges that ResCap violated its own standards in packaging subprime mortgages into mortgage-backed securities that eventually were purchased by WesCorp and U.S. Central. The claims are similar to ones NCUA has brought against a dozen of Wall Street’s biggest investment banks that sold MBS to one or more of the five failed corporates.
NCUA has filed similar claims against JP Morgan Chase, Goldman Sachs, RBS Securities, Barclay’s Capital, Credit Suisse, UBS Securities, as well as defunct firms Bear Stearns, Washington Mutual and Wachovia. The regulator has reached out of court settlements with Citicorp, HSBC, Deutsche Bank and Bank of America.
ResCap, which now calls itself Ally Financial and is controlled by the government, was one of the biggest issuers of residential MBS. It sold more than $225 billion worth to big institutional investors such as WesCorp.
