Nine companies involved in the sale of mortgage-backed securities to two failed financial institutions are facing federal lawsuits.
Southwest Corporate Federal Credit Union was seized by the National Credit Union Administration in September 2009. Around $14 million in losses were expected from the failure of the Plano, Texas-based firm.
Members United Corporate Federal Credit Union was taken over by the NCUA in September 2010. Its assets were subsequently transferred to Members United Bridge Corporate Federal Credit Union.
Between the two corporate credit unions, $2.4 billion in faulty MBS were acquired, according to the NCUA — which filed nine lawsuits Monday in an effort to recover losses from the MBS investments.
The NCUA says that a total of five corporate credit unions have failed, including Southwest and Members United, as a result of the MBS purchases.
Morgan Stanley & Co. Inc., Morgan Stanley Capital I Inc., Barclays, J.P Morgan/Bear Stearns, Credit Suisse, Royal Bank of Scotland and UBS were named as defendants in the lawsuits that allege they sold faulty securities to both corporate credit unions.
Morgan Stanley sold $416 million of the MBS.
Goldman Sachs, Wachovia and Residential Funding Securities, LLC, now known as Ally Securities, were named as defendants in lawsuits that allege they sold faulty MBS to just Southwest.
“NCUA’s complaints allege the offering documents of the securities sold to the failed corporate credit unions contained statements that were not true or omitted material facts,” the regulator said in a statement Monday. “The originators systematically abandoned the stated underwriting guidelines in the offering documents, according to the complaints, with the result that the securities were significantly riskier than represented.”
The NCUA said it has previously collected $335 million from MBS settlements with Citigroup, Deutsche Bank Securities, HSBC and Bank of America.
