NCUA Can Bring RMBS Claims Against Goldman Sachs in Federal Court

On January 28, Judge Denise Cote of the U.S. District Court for the Southern District of New York denied Goldman Sachs’s motion to compel arbitration for RMBS claims brought by the National Credit Union Administration (NCUA). NCUA brought the claims as the liquidating agent of the Southwest Corporate Federal Credit Union. Goldman sought to compel arbitration under an agreement between Southwest and Goldman Sachs from 1992. The court held that NCUA has the power to repudiate contracts of a credit union in liquidation under the terms of its enabling legislation, and exercised that authority here. NCUA’s claims under Sections 11 and 12 of the Securities Act of 1933 and under the Texas Securities Act will proceed in federal district court. Order.

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.

Supervisory Approach for Qualified and non-Qualified Mortgage Loans

On December 13, Fed, FDIC, NCUA and OCC issued a statement to clarify safety-and-soundness expectations in order to guide institutions engaged in residential mortgage lending as they assess the implementation of the CFPB’s Ability-to-Repay and Qualified Mortgage Standards Rule, which is effective January 10, 2014.  Joint ReleaseJoint Statement.

Final Rules on Appraisal Exemptions for Higher-Priced Mortgages

On December 12, the Fed, FDIC, CFPB, FHFA, NCUA and OCC issued a final rule that creates exemptions from certain appraisal requirements for certain higher-priced mortgage loans.  The final rule provides that loans of $25,000 or less and certain “streamlined” refinancings are exempt from the Dodd-Frank Act appraisal requirements, which go into effect on January 18, 2014.  Joint ReleaseJoint Final Rule.

Joint Rule on Appraisals for Higher-Priced Mortgage Loans

On January 18, the Fed, CFPB, FDIC, FHFA, NCUA and OCC issued a joint final rule, effective January 18, 2014, which establishes new appraisal requirements for “higher-priced mortgage loans”.  For these loans, the rule requires creditors to: (i) use a licensed or certified appraiser who prepares a written appraisal report based on a physical visit of the interior of the property and (ii) disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.  Joint Release.  Final Rule.

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. 

NCUA Sues UBS Over $1.1 billion in RMBS Sold to Collapsed Credit Unions

On September 6, 2012, the National Credit Union Administration Board (NCUA) sued UBS in the United States District Court for the District of Kansas.  The NCUA filed the suit in its capacity as Liquidating Agent of U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, which collectively are alleged to have purchased over $1.1 billion in RMBS from UBS.  The complaint alleges that the originators of the mortgages collateralized into the RMBS had “systematically abandoned” the underwriting guidelines described in the offering documents.  The NCUA also alleges that the offering documents contained untrue statements of material fact concerning weighted average LTV ratios, the evaluation of the borrowers’ capacity and likelihood to repay the mortgage loans, and the reduced documentation programs used by the originators.  The NCUA asserts claims under Sections 11 and 12(a)(2) of the Securities Act of 1933, Sections 25401 and 25501 of the California Corporate Securities Law, and the Kansas Uniform Securities Act.  The NCUA seeks rescission or rescissionary damages or, in the alternative, compensatory damages.  NCUA Complaint.

Agency Proposed Rule on Appraisals for Higher-Risk Mortgages

On August 15, the Fed, CFPB, FDIC, FHFA, NCUA, and OCC issued a proposed rule to establish new appraisal requirements for “higher-risk mortgage loans”.  The proposed rule would implement amendments to the Truth in Lending Act enacted by the Dodd-Frank Act, which classify mortgage loans as higher-risk if they are secured by a consumer’s home and have interest rates above a certain threshold.  Comments must be submitted by October 15.  Joint Release.  Proposed Rule.