Agencies Memorandum of Understanding on Supervisory Coordination

On June 4, pursuant to Section 1025 of the Dodd-Frank Act, the Fed, the CFPB, the FDIC, the NCUA and the OCC released a memorandum of understanding clarifying how the agencies will coordinate their supervision of insured depository institutions with over $10 billion in assets and their affiliates. Joint Release. Memorandum of Understanding.

HSBC Agrees to Settle Potential NCUA Claims for $5.25 Million

On March 12, 2012, the National Credit Union Administration (“NCUA”) announced that it reached a settlement with HSBC concerning potential claims arising out of HSBC’s sale of RMBS to five failed credit unions.  HSBC agreed to pay $5.25 million, and admitted no fault or liability in connection with the settlement.  This is the third pre-litigation settlement that NCUA has reached in connection with the potential RMBS claims of failed credit unions.  Press Release.

Joint Guidance on Junior Lien Loan Loss Allowances

On January 31, the FDIC, Fed, NCUA, and OCC issued supervisory guidance on the allowance for loan and lease losses estimation practices for loans and lines of credit secured by junior liens on 1-4 family residential properties. The agencies reiterated key GAAP concepts and existing guidance relating to such loss estimation practices. FDIC Release.

Federal District Court Signals Intention to Dismiss National Credit Union Authority Suit

On December 19, 2011, Judge George H. Wu of the Central District of California issued a tentative ruling that the National Credit Union Authority has failed to sufficiently allege that defendants, which include RBS, Wachovia and Nomura, systematically disregarded underwriting standards in connection with the offering and sale of RMBS. The complaint includes claims for violations of Sections 11 and 12(1)(2) of the Securities Act of 1933 and Sections 25401 and 25501 of the California Corporations Code. The court explained that the NCUA’s reliance on post-purchase statistics and other public information is “conclusory” and, without additional information, would fail to satisfy the pleading standards. Judge Wu requested additional supplemental briefing and stated that he will review the additional information before making a final decision. Decision.

NCUA Sues Wachovia Over Credit Unions’ RMBS Investments

On November 28, 2011, the National Credit Union Administration (“NCUA”), an independent federal agency that supervises and charters federal credit unions, filed a complaint in the federal district court for the District of Kansas against Wachovia Capital Markets LLC. NCUA is suing in its capacity as the liquidating agent of two failed credit unions, U.S. Central Federal Credit Union (“U.S. Central”) and Western Corporate Federal Credit Union (“WesCorp”). NCUA seeks approximately $200 million in damages based on alleged untrue statements and omissions in the offering documents for 5 RMBS purchased by U.S. Central and WesCorp. NCUA asserts causes of action under Sections 11 and 12(a)(2) of the federal Securities Act, as well as violations of the California and Kansas securities laws. Complaint.

Multi-Agency Statement on Supervisory and Enforcement of Consumer Financial Laws

On November 17, the Fed, Consumer Financial Protection Bureau, FDIC, NCUA, and OCC issued a supervisory statement to provide clarity and transparency as to the determination of the total assets of an insured depository institution or an insured credit union for the purposes of supervision and enforcement responsibilities under Sections 1025 and 1026 of the Dodd-Frank Act. The agencies have indicated that they will use the total assets reported in a depository institution’s required quarterly reports of condition, or Call Reports to determine an institution’s asset size for these purposes and that they will follow the FDIC’s deposit insurance assessment methods to determine whether an institution should be classified as a “Large Institution”. Multi-Agency Release. Supervisory Statement.

NCUA Settles with Citigroup and Deutsche Bank in RMBS Dispute

The National Credit Union Administration (“NCUA”), an independent federal agency that supervises and charters federal credit unions, reached a $145 million settlement with Deutsche Bank and a separate $20.5 million settlement with Citigroup, stemming from the banks’ sales of RMBS to five failed credit unions. The NCUA did not file a lawsuit against either Citigroup or Deutsche Bank, although the NCUA currently has RMBS suits pending against three other financial institutions. Press Release 1. Press Release 2.

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.

S&P Downgrade of U.S. Credit Rating

On August 5, S&P downgraded the sovereign credit rating of the United States to ‘AA+‘ from ‘AAA’, and stated that the outlook on the long-term rating is negative. S&P cited the prolonged controversy between Congress and the Obama Administration over raising the statutory debt limit, and the rising public debt burden as reasons for the downgrade. S&P also published a list of ratings actions on Organizations, Issues (including U.S. Public Finance), Insured Bonds, and Funds that were affected by the rating downgrade. S&P Release on Downgrade. S&P Rating Action Related Information.

On August 5, the Fed, FDIC, NCUA, and OCC announced that, for risk-based capital purposes, the risk weights for Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies and government-sponsored entities will not change as a result of the downgrade by S&P. Agencies’ Joint Release.

On August 2, Moody’s confirmed the ‘Aaa‘ government bond rating of the United States following the raising of the statutory debt limit while assigning the rating a negative outlook. Also on August 2, Fitch confirmed its ‘AAA‘ United States sovereign rating but noted that it projects that the United States government debt will continue to rise over the medium term in a manner inconsistent with maintaining a ‘AAA’ rating. Moody’s Release. Fitch Release.

Note: Free registration is required for Fitch, Moody’s and S&P releases.

National Credit Union Administration Sues RBS Securities Inc. Over RMBS Sales

On July 18, 2011, the National Credit Union Administration (“NCUA”) filed a lawsuit against RBS Securities Inc. (“RBS”) in United States District Court for the Central District of California. NCUA alleges that RBS misled Western Corporate Federal Credit Union (“WesCorp”) about the safety of mortgage-backed securities. The lawsuit alleges violations of Sections 11 and 12(a)(2) of the ’33 Act as well as the California Corporate Securities Law. NCUA alleges RBS made untrue statements of material fact regarding borrowers’ likelihood to repay the mortgage loans, reduced documentation programs, loan-to-value ratios, and credit enhancement. NCUA previously filed similar lawsuits against JP Morgan and Royal Bank of Scotland. NCUA Complaint vs. RBS.