Regulation

NCUA files suit against eight originators over allegedly faulty mortgage-backed securities

resized_NCUA_SEALThe National Credit Union Administration filed nine lawsuits on Monday against Morgan Stanley and eight other institutions over the sale of $2.4 billion in allegedly faulty mortgage-backed securities to Southwest and Members United.

“We continue to pursue accountability and recovery in the wake of billions of dollars in sales of faulty securities that led to the collapse of several corporate credit unions and handed the industry the costly bill of paying for the losses,” NCUA Board Chairman Debbie Matz said. “All the credit unions we supervise and insure are sharing those costs. The people who are responsible should be required to shoulder that burden, as well.”

The suits against Morgan Stanley, Morgan Stanley Capital, Barclays, JPMorgan/Bear Stearns, Credit Suisse, RBS and UBS make claims under either federal or state securities law. The NCUA alleges that five corporate credit unions failed as a result of the faulty MBS purchases.

Southwest and Members United paid over $416 million for the Morgan Stanley securities in question and nearly $2 billion for securities from the other defendants.

NCUA alleges that the securities’ offering documents contained untrue or incomplete information and that the originators abandoned underwriting guidelines, resulting in securities that were much riskier than represented.

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