ALEXANDRIA, Va. (3/23/15)--The National Credit Union Administration has filed a lawsuit suit in federal court against HSBC Bank USA, National Association, alleging the bank violated state and federal law by failing to fulfill its duties as trustee for 37 residential mortgage-backed securities trusts.
The agency is suing in its capacity as liquidating agent for five failed corporate credit unions--U.S Central, WesCorp, Members United, Southwest and Constitution--and on behalf of certain NCUA Guaranteed Notes trusts.
"As with the other trustees we have sued, HSBC failed to live up to its obligations under federal and state law, and we want the bank held accountable," NCUA Board Chair Debbie Matz said. "As our complaint states, instead of protecting the trusts and the certificate holders, HSBC sat by as the trusts wasted away. This failure caused significant harm to trust beneficiaries, including the corporate credit unions and ultimately consumer credit unions."
The five corporate credit unions purchased roughly $1.97 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 corporate credit unions.
"CUNA continues to support NCUA's efforts to recover funds lost on behalf of corporate credit unions," said Robin Cook, CUNA senior director of advocacy and special projects counsel. "These cases are important to credit unions because the funds recovered are being used to offset the costs of corporate stabilization. We appreciate NCUA's continued diligence in pursuing every possible legal theory in this area and look forward to additional recoveries."
The complaint states the value of the securities depended on the quality of the pooled mortgage loans the trusts contained, and HSBC, as trustee, had contractual, statutory and common law duties to protect the interests of certificate holders.
The complaint charges that despite knowing about defects in the mortgage loans, HSBC failed to:
The NCUA's complaint seeks damages to be determined at trial.
The case, National Credit Union Administration Board v. HSBC Bank USA NA, was filed in U.S. District Court for the Southern District of New York.
In December, NCUA sued Wells Fargo Bank, National Association, alleging it failed to fulfill its duties as trustee for 27 residential mortgage-backed securities trusts (News Now Dec. 29).