MADISON, Wis. (8/19/13)--CUNA Mutual Group has filed six lawsuits in a federal court in Madison, Wis., against banks over losses from residential mortgage-backed securities (RMBS) sold to it prior to the 2007 financial crisis. It is seeking rescission of the purchase of the certificates it bought.
The suits were filed Thursday in the U.S. District Court for the Western District of Wisconsin against Morgan Stanley ($23 million); Bank of America/Merrill Lynch ($121 million); J.P. Morgan (Bear Stearns, Wamu, JP Morgan Chase) ($116 million); Nomura Securities ($8 million); UBS ($6 million); and Goldman Sachs ($12 million).
"These actions are to right a wrong and are being taken in the best interests of CUNA Mutual Group, credit unions and all policyholders," said Phil Tschudy, media relations manager at CUNA Mutual group. "The defendants falsely represented investment products they sold us between 2004 and 2007 and, as a result, we are seeking a recovery of our investment," he told News Now Friday.
The suits, which have similar allegations tailored to each defendant, seek to rescind or make the seller buy back the RMBS certificates purchased because the companies "induced CUNA Mutual to purchase those certificates by misrepresenting the fundamental attributes of, and thus the credit risk associated with, the pools of mortgage loans collateralizing the RMBS."
The 93-page complaint against Morgan Stanley & Co. noted that after CUNA Mutual made its purchases, the mortgage loans in the pools "began to default at high rates consistent with their true attributes" and caused "millions of dollars in losses."
Under Wisconsin law, said the insurance provider, the misrepresentations of material fact justify the rescission of the purchases, regardless of whether the banks made the misrepresentations intentionally, recklessly, negligently, or even innocently, said the complaint.
CUNA Mutual said that Morgan Stanley induced it to buy four RMBS certificates between 2005 and 2007 "by falsely representing that the loans backing the RMBS had been issued in compliance with the relevant originators' underwriting standards" and "by misrepresenting the quantitative characteristics of the loan pools" such as loan-to-value ratios, owner-occupancy rates and credit ratings. It said its reliance on the material misrepresentation was justified because the bank "marketed itself as an expert in RMBS that gave investors accurate information, as securities laws requires it to."
The complaint noted that CUNA Mutual was mistaken about a basic assumption underlying the transactions: that they were issued in compliance with the originators' underwriting standards. Earlier CUNA Mutual filed a similar $72 million lawsuit against RBS Securities in the same court, seeking rescission and alleging unjust enrichment (News Now April 8).
The lawsuits are similar to those filed by the National Credit Union Administration against Wall Street banks that sold RMBS to corporate credit unions, including U.S. Central FCU and Western Corporate FCU, which were liquidated in 2010.