NEW YORK (10/31/13)--A settlement filed in a bankruptcy court in New York means that, if approved by the court, the National Credit Union Administration would be recognized as having $78 million in allowed claims against debtors affiliated with Residential Capital LLC related to residential mortgage-backed securities (RMBS) sold to corporate credit unions. However, the actual figure to be awarded is likely to be smaller, said NCUA.
"The proposed proposed settlement agreement recognizes that NCUA has $78 million in allowed claims against the bankruptcy estate, but the figure we are awarded will be much smaller," said John Fairbanks, public affairs specialist with NCUA's Office of Public and Congressional Affairs. "There's a liquidation process to be completed that will determine the value of assets in the estate, the number and status of creditors, and the amount of their claims against those assets. Once that is completed, a determination of the value of the claims will be made and this will determine what NCUA will receive," he told News Now.
Settlement documents submitted Monday to the U.S. Bankruptcy Court for the Southern District of New York stipulate that NCUA had claims totaling $590 million against Ally Financial Inc. (AFI) (over $390 million) and Ally Securities LLC (about $200 million), two entities involved in a Chapter 11 reorganization of ResCap.
Residential Accredit Loans Inc. (RALI) and Residential Funding Mortgage Securities II (RFMS II) acted as depositors for the securities, which were sold to Western Corporate FCU, U.S. Central FCU and Southwest Corporate FCU. WesCorp and U.S. Central were put into conservatorship in 2009 and Southwest in 2010. NCUA, as the liquidating agent for the corporates, sued, alleging that the securities' offering documents contained untrue statements and omissions of material facts.
NCUA filed 11 proofs of claim--10 against RALI and one against RFMS II--claiming about $293 million in aggregate claims.
NCUA's "claims shall be reduced and allowed in the aggregate amount of $78 million in full and final satisfaction of any and all claims that have been or could have been asserted by the NCUA (Board) or the credit unions in these cases, including any and all claims" against AFI or Ally Securities, said the settlement agreement filed Monday.
A separate filing Monday by the debtors noted that "litigation of these claims could take several years and incur substantial administrative costs" with "no guarantee of the ultimate outcome at the conclusion of such litigation." The settlement, the document said, "constitutes a far more efficient, reasonable, and cost-effective resolution of these claims than proceeding with litigation."
A hearing on confirmation of the debtors and creditors' committee's Joint Chapter 11 Plan is scheduled for Nov. 19, said the court documents.