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MBS Lawsuits: Phase II

Up to this point, residential mortgage-backed securities lawsuits had primarily focused on entities involved in issuance. Now, trustees are the target.

The National Credit Union Administration
previously filed lawsuits against several firms including J.P. Morgan Securities LLC, Wachovia Capital Markets LLC and Morgan Stanley & Co. Inc.

The regulator alleged that five failed corporate credit unions — U.S. Central Federal Credit Union, Western Corporate, Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union and Constitution Corporate Federal Credit Union — were misled about the quality of private-label RMBS they invested in.

Mortgage Daily has tracked around $2 billion in settlement proceeds collected by the NCUA from some of the MBS lawsuits. Others remain unresolved.

Now the
NCUA is setting its sights on the trustees on RMBS transactions.

The Alexandria, Va.-based agency announced that it filed a complaint Tuesday in federal court in Manhattan, N.Y., against Bank of America, N.A., and U.S. Bank, N.A.

The lawsuit, filed on behalf of the five failed corporate credit unions, alleges that BofA and U.S. Bank violated state and federal laws by failing to fulfill their duties as trustees for 99 RMBS trusts.

NCUA claims that
even though the defendants knew about defects in the mortgages, they neglected to provide required notices to certificate holders and other parties as contractually required.

In addition,
BofA and U.S. Bank allegedly failed to take timely action to force the repurchase, substitution or cure of defective mortgage loans or otherwise preserve trust remedies.

“NCUA will diligently continue to pursue legal remedies against parties that contributed to losses suffered by the credit union system,” NCUA Board Chairman Debbie Matz said in a news release. “U.S. Bank and Bank of America had obligations under federal and state law, and they failed to live up to those obligations.”

Matz went to say that
the inaction caused significant harm to the corporate credit unions, which, in turn, harmed consumer credit unions.

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