Real Estate Journal Online

The National Credit Union Administration (NCUA) believes that lenders misrepresented the value and risk level of hundreds of securities sold that caused the failure of five wholesale credit unions[1]. Now, the NCUA is taking at least two lenders to task and additional lawsuits are likely to follow. “NCUA has the responsibility to do everything in our power to seek maximum recoveries from those involved in the issuing, underwriting and sale of faulty securities,” explained Debbie Matz, NCUA board chairman while addressing NCUA’s suits against JPMorgan Securities and Royal Bank of Scotland (RBS) Securities. “Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions,” she added.

NCUA is accusing the lenders of “duping” five credit unions into buying more than $3 billion in mortgage bonds “destined to perform poorly.” The Wall Street Journal is calling this “the most aggressive move yet by U.S. regulators to recover losses from Wall Street firms for alleged wrongdoing before and during the financial crisis”[2]. More than 40 credit unions have failed since 2009, leaving the NCUA with about $50 billion in junky bonds worth only a fraction of their original value. NCUA seeks more than $800 million in damages from the two lenders and has threatened to sue Goldman Sachs as well. The administration says that the sales pitch for the bonds “caused credit-union officials to underestimate the riskiness of the bonds they purchased.”

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