Does voiding of BofA settlement ruling impact CUs?

May 24, 2016

CUNA Chief Policy Officer/Chief Economist Bill Hampel said there is no immediate concern for credit unions regarding a U.S. appeals court decision to throw out a $1.27 billion penalty levied by the U.S. Department of Justice against Bank of America (BofA) in connection with questionable mortgages sold by the former subprime giant Countrywide.

Over recent years, the NCUA has recouped a total of $2.5 billion in legal recoveries arising from  losses related to purchases of residential mortgage-backed securities (RMBS). The NCUA initiated litigation as liquidating agent for five failed corporate credit unions.

Net proceeds have been used to pay claims against the corporates and the Temporary Corporate Credit Union Stabilization Fund. In turn, Stabilization Fund recoveries reduced borrowings from the U.S. Treasury and will increase the size of eventual rebates of assessments and extinguished capital. (See story: TCCUSF ends 2015 with positive $540.4M net position.)

Hampel said there is no immediate concern regarding the settlements. The NCUA recoveries are based on legal settlements in a civil case to which both parties agreed. The appeals court decision on BofA is quite different in that it reverses a government-imposed fine for alleged criminal fraud. The court overturned the government fine because it said breach of contract--not fraud--was involved in Countrywide's practices.

However, Hampel adds, while the ruling won’t have an impact on previously settled NCUA cases, there could be a concern regarding the agency's four remaining cases, and CUNA will continue to monitor these closely.

"We will be watching to see if this court of appeals action emboldens banks to more aggressively fight challenges to their RMBS practices leading up to the economic upheaval," he said.

The NCUA has pending suits against Goldman Sachs, UBS, Morgan Stanley and Credit Suisse.