ALEXANDRIA, Va. (12/18/14)--A lawsuit has been filed by the National Credit Union Administration alleging two banks failed to fulfill their duties as trustees for 99 residential mortgage-backed securities trusts. The agency announced the lawsuit, which has been filed against U.S. Bank National Association and Bank of America National Association, Wednesday.
"NCUA will diligently continue to pursue legal remedies against parties that contributed to losses suffered by the credit union system," said NCUA Chair Debbie Matz. "U.S. Bank and Bank of America had obligations under federal and state law, and they failed to live up to those obligations. This caused significant harm to trust beneficiaries, including the corporate credit unions and ultimately consumer credit unions. Our legal efforts are aimed at promoting accountability within the financial system."
Credit Union National Association General Counsel Eric Richard commended the NCUA for continuing actions to recover lost assets.
"We appreciate NCUA's continued pursuit of recoveries in court on the assets of the conserved corporates," he said. "Any recovered funds should be credited to the estates of the failed corporates. We hope to someday see a return of capital to the credit unions that had capitalized the corporates."
The NCUA's complaint states the value of the securities depended on the quality of the pooled mortgage loans the trusts contained, and the banks, as trustees, had contractual and statutory duties to protect the interests of certificate holders.
The complaint states that, despite knowing about defects in the mortgage loans, U.S. Bank and Bank of America failed to provide required notices to certificate holders and other parties and failed to take timely action to force the repurchase, substitution or cure of defective mortgage loans or otherwise preserve trust remedies.
Five corporate credit unions--U.S Central, WesCorp, Members United, Southwest and Constitution--purchased roughly $5.8 billion in residential mortgage-backed securities issued from the trusts between 2004 and 2007. Those securities lost value, contributing to the failure of all five.
According to the NCUA, the lawsuit seeks damages to be determined at trial.