DENVER — NCUA on Tuesday received good news from the U.S. Court of Appeals for the Tenth Circuit, which upheld its original opinion that the regulator's suit against several banks regarding mortgage-backed securities can proceed.
The banks filed a motion to dismiss the suit, arguing that the three-year statute of repose began running when the securities were offered or sold.
NCUA countered that a law passed by Congress after the savings and loans crisis in the 1980s meant that it had three years to file suit from the time it placed U.S. Central and WesCorp into conservatorship, or when it discovered the alleged violations.
NCUA filed claims against Wachovia Capital, now a unit of Wells Fargo & Co., and Nomura Asset Acceptance Corp., both of which originated subprime loans packaged into mortgage-backed securities that figured into the 2009 failure of WesCorp.
The regulator said that CUs invested $1.74 billion in mortgage-backed securities, many of which the agency contends were riskier than the offering documents indicated.
On Aug. 27, 2013, the Tenth Circuit concluded the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 established a universal time frame for NCUA to bring "any actions on behalf of credit unions placed into conservatorship or receivership, notwithstanding any pre-existing time periods applicable to other plaintiffs."
The Supreme Court ordered reconsideration of the ruling in light of a decision it reached in June on the deadlines for filing some environmental suits.
On Aug. 19, the Tenth Circuit declared, "Upon consideration, we reinstate our original opinion, and also direct the clerk to issue our Opinion on Remand."
In an e-mail, NCUA Spokesman John Fairbanks wrote, "We are pleased with the judges' decision, and it is good news for credit unions."
Carrie Hunt, senior vice president of government affairs and general counsel for NAFCU, said that it has been the trade group's longstanding position that NCUA should "leave no stone unturned" as it attempts to recover from issuers of faulty mortgage-backed securities.
"So we support any and all avenues in that regard," she said. "We regard it as extremely positive that this decision allows the suit to proceed."
Eric Richard, CUNA’s executive vice president and general counsel, hailed the fact the Tenth Circuit ruled that it “got it right the first time,” and that these cases should proceed.
“This is the latest in a string of victories NCUA has won on behalf of credit unions in litigation that has already paid enormous dividends to the credit union system,” Richard said. “Yesterday’s decision means the banks and others that are defending these cases are now at a fork in the road: they can decide to seek further appellate review, decide to litigate, or decide to settle with NCUA.”
According to Richard, NCUA was one of the first government agencies to bring mortgage-backed securities litigation against big banks, “and should be commended for doing so.”
“The more than $1.75 billion in settlements NCUA has already secured has helped offset the cost of the corporate crisis for credit unions,” Richard assessed. “America’s credit unions have faced substantially lower corporate assessments as a result. CUNA looks forward to more litigation success, and will continue to monitor these cases on behalf of credit unions.”
