WICHITA, Kan. (3/1/12)--J.P. Morgan Chase & Co. on Wednesday asked the U.S. District Court of Kansas to reject the National Credit Union Administration's (NCUA) claim that a previous court ruling supports its arguments in the agency's mortgage-backed securities (MBS) lawsuits against RBS Securities and Goldman Sachs.
The suit is one of several filed by NCUA, seeking about $2 billion total from companies that sold MBSs to corporate credit unions. It has also sued J. P. Morgan Securities LLC, Goldman Sachs and Wells Fargo, which succeeded Wachovia Bank.
J.P. Morgan's arguments were in response to a Feb. 17 by NCUA citing Mass. Mutual Life Ins. Co. v. Residential Funding, in which the U.S. District Court in Massachusetts on Feb. 14 denied motions to dismiss NCUA's similar MBS lawsuits against RBS Securities and Goldman Sachs. The Massachusetts court also rejected the same arguments that RBS and Goldman Sachs have presented in the lawsuits NCUA brought against them involving MBS they sold to Western Corporate FCU (WesCorp) and U.S. Central FCU (News Now Feb 22).
In its response filed Wednesday, J.P. Morgan said NCUA did not conduct any "forensic analysis of loan data" underlying the securities as the plaintiff did in the MassMutual case and that it did not rely on any original witness testimony.
J.P. Morgan cited a tentative ruling by a federal judge in California to dismiss NCUA's $629 million lawsuit against RBS Securities Inc. over the mortgage-backed securities (MBS) it sold to the now defunct WesCorp. In that case, U.S. District Judge George Wu had said NCUA relied mostly on "conclusionary" allegations tied to statistics that showed how the investments were affected by the housing market collapse.
MassMutual also said that NCUA has publicly attributed the poor performance of its MBS to market factors. J.P. Morgan Chase argues this undermines NCUA's contention of a disregard of underwriting standards on the part of originators was the cause of the losses.
NCUA's claims were based on securities companies' "wholesale abandonment of underwriting standards," when the facts of the case point to only a "loosening" of standards, which NCUA admits are not equivalent to abandonment, said J.P. Morgan.
NCUA warned credit unions as early as 2005 of the potential for inflated home appraisals and the risks of liberalized underwriting practices, J.P. Morgan said.