United States District Court for the Central District of California

District Court Allows NCUA’s RMBS Suit to Proceed Against RBS

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Nat’l Credit Union Admin. Bd. v. RBS Sec. Inc. et al., No. 2:11-cv-05887 (C.D. Cal. July 18, 2011)

On March 16, 2015, Judge George Wu of the United States District Court for the Central District of California denied RBS Securities Inc.’s motion to dismiss the National Credit Union Administration’s second amended complaint.  In July 2011, NCUA sued RBS on behalf of WesCorp, a federal credit union, in order to recover billions of dollars for failed wholesale credit unions claiming investment banks misled them about the nature and quality of offered RMBS.  NCUA alleges that RBS’ underwriters downplayed investment risks and made misrepresentations in offering documents by underestimating the likelihood that borrowers would default on their mortgages.  Judge Wu said that the court would not consider a motion to dismiss parts of claims under F.R.C.P. 12(b)(6).  He noted that his approach differed from that of Judge John W. Lungstrum of the District of Kansas, who agreed to hear motions to dismiss portions of a claim in NCUA v. RBS Secs., Inc., No. 11-2340-JWL (D. Kan. June 20, 2011), denying and granting those motions in part.  Order.

 

Court Dismisses Occupancy Status Claims Against Countrywide

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On August 17, Judge Mariana R. Pfaelzer of the United States District Court for the Central District of California granted in part and denied in part the motion of Countrywide and Bank of America to dismiss an action brought by MassMutual in connection with its alleged purchase of RMBS.  Judge Pfaelzer held that Countrywide could not be liable for accurately repeating borrower-provided occupancy information in its offering documents where the offering documents specifically attributed the statements about owner occupancy to the borrowers.  Judge Pfaelzer further held that MassMutual failed to sufficiently plead Bank of America’s liability as a successor to Countrywide, thus warranting dismissing Bank of America from the suit.  The court held, however, that MassMutual had sufficiently pled claims under the Massachusetts Uniform Securities Act for alleged misrepresentations as to loan-to-value ratios and originator compliance with underwriting guidelines.  Decision.

Option One Reaches $28.2 Million Settlement with SEC Over RMBS Misrepresentation Claims

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On April 24, 2012, the SEC announced a settlement with Option One Mortgage Corp. (“Option One”), now known as Sand Canyon Corporation, and filed an action in the United States District Court for the Central District of California for the purpose of having the settlement approved by the court. In the complaint, the SEC alleged that Option One had omitted material information from the offering materials for seven RMBS securitizations in early 2007 by failing to tell investors that Option One’s deteriorating financial condition would inhibit its ability to satisfy its loan repurchase obligations in connection with those RMBS. The $28.2 million settlement resolves claims that the SEC asserted under Section 17 of the Securities Act of 1933. Press Release.  Complaint.

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

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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.