On March 20, the National Credit Union Administration Board, acting as liquidating agent for five failed credit unions, filed suit against HSBC USA in the Eastern District Court of Virginia. NCUA alleged that HSBC breached its duties as trustee for 37 RMBS trusts from which the credit unions had purchased $2.37 billion in certificates. In particular, NCUA alleges that HSBC failed to enforce loan originators’ repurchase obligations in connection with alleged breaches of representations and warranties about the loans in the trusts, failed to prudently address servicer or master servicer defaults, and failed to ensure proper conveyance of the loan files to the trusts. NCUA asserts claims for breach of contract, breach of fiduciary duty, negligence, negligent misrepresentation, breach of the covenant of good faith, violation of the Streit Act, and violation of the Trust Indenture Act. Complaint.
National Credit Union Administration Board
Judge Dismisses Federal Securities Claims from NCUA Action Against Morgan Stanley
On January 22, Judge Denise Cote of the U.S. District Court for the Southern District of New York trimmed claims from a lawsuit brought by the National Credit Union Administration Board, as liquidating agent for various federal credit unions, alleging that two Morgan Stanley entities made material misrepresentations in the offering documents for $400 million in RMBS. Partially granting Morgan Stanley’s motion to dismiss, the court held that NCUA’s federal securities claims were time-barred under the three-year statute of repose imposed by the Securities Act of 1933. In reaching this conclusion, the court found that NCUA did not become conservator for the credit unions until after the statute of repose had run, and therefore could not avail itself of a provision of the Federal Credit Union Act that extends the limitations period for actions brought by the NCUA. Despite its dismissal of NCUA’s federal securities claims, the court ruled that securities claims against Morgan Stanley brought under Illinois and Texas blue sky laws both were timely and adequately pled. Decision.
National Credit Union Administration Sues Bear Stearns for $3.6 Billion in RMBS
On December 17, 2012, the National Credit Union Administration Board, acting in its capacity as liquidating agent for four failed credit unions, sued several Bear Stearns affiliates in federal court in Kansas in connection with $3.6 billion in RMBS allegedly purchased by the failed credit unions. The NCUA alleges that the originators of the mortgage loans underlying the RMBS systematically disregarded the underwriting guidelines stated in the offering documents. It also alleges that the offering documents contain untrue statements of material fact concerning the evaluation of the borrowers’ capacity and likelihood to repay the mortgage loans, reduced documentation programs, loan-to-value ratios, and credit enhancement. The NCUA asserts 24 separate counts for relief under Sections 11 and 12(a)(2) of the Securities Act of 1933, the California Corporate Securities Law, the Kansas Uniform Securities Act, the Texas Securities Act, and the Illinois Securities Act. Complaint.
National Credit Union Administration Sues Goldman Sachs Over Sale of MBS
On August 9, 2011, the National Credit Union Administration Board (“NCUA”) sued Goldman Sachs in federal court in Los Angeles over Goldman’s sale of mortgage-backed securities to credit unions. NCUA claims that Goldman misrepresented the quality of the loans backing the securities in its offering documents. It also claims that the loans did not satisfy the underwriting guidelines Goldman included in its offering documents. The Complaint cites the Financial Crisis Inquiry Commission Report issued in January 2011 in support of its claims that mortgage loan originators disregarded prudent underwriting practices and securitizers like Goldman did not perform sufficient due diligence, leaving investors without access to critical information about the loans. NCUA alleges claims under Sections 11 and 12(a)(2) of the ’33 Act, Sections 25401 and 25501 of the California Corporate Securities Law of 1968, and Section 17-12a509 of the Kansas Uniform Securities Act. NCUA seeks more than $491 million in damages. NCUA has brought four actions against other RMBS issuers since June 20, 2011. Complaint.