LOS ANGELES (2/14/12)--The National Credit Union Administration (NCUA) Friday filed consolidated briefs opposing motions to dismiss its lawsuits in federal courts in California and Kansas against Goldman Sachs & Co. and RBS Securities for selling residential mortgage backed securities (RMBS) that caused losses to U.S. Central FCU and the Western Corporate FCU.
Dismissals had already been tentatively ruled in the U.S. District Court for the Central District of California--Western Division (Los Angeles) in another suit NCUA had brought against RBS Securities (News Now Feb. 1).
In the case against Goldman Sachs, filed in that same court in Los Angeles over 13 RMBS certificates, NCUA's response reiterates its arguments that the loan originators "systematically disregarded their stated underwriting standards and routinely made loans where no or insufficient compensating factors existed." When the loans were repackaged into RMBS, "those deficiencies caused the certificates to be worth far less than their purchasers paid. In light of such pervasive disregard, the stated underwriting standards might as well not have existed."
NCUA also noted that "virtually every court addressing claims concerning similar RMBS offerings has denied motions to dismiss--16 in all…In six prior cases, underwriter Goldman raised and lost the identical arguments it advances here, against complaints with less-detailed allegations than NCUA's complaint."
The agency challenged the assertion that statutes of limitations have run on its claims. It also noted its federal claims are timely because they were brought within three years of NCUA's placing the credit unions into conservatorship and that Congress' "extender statute" allowed NCUA more time to bring the claims.
The crux of NCUA's arguments is that the securities documents materially represented compliance with the stated underwriting standards and that its allegations in the Goldman case are stronger than those upheld in numerous RMBS cases. The agency alleges actionable misrepresentations and omissions regarding loan-to-value ratios and credit enhancement, and said the credit unions could not reasonably have discovered the falsehoods before March 20, 2008.
It also said that two tentative rulings by the court in California on the RBS case are "erroneous, in light of the persuasive reasoning of numerous other courts" and in light that Goldman already has paid the largest fine in history to resolve RMBS fraudulent sales claims, while another RBS has "not (yet) been found to have engaged in such misconduct."
NCUA's response to the motion to dismiss its case against RBS Securities in the U.S. District Court for the District of Kansas, also filed Friday, uses similar arguments, alleging "actionable misrepresentations and omissions about systematic disregard of underwriting standards" in the sale of securities to U.S. Central.
"Virtually all courts to address similar issues have held that an RMBS purchaser can state a claim under the securities laws by alleging that the loans backing an RMBS were originated in systematic disregard of the stated underwriting standards," said NCUA's response to the motion to dismiss the case in Kansas.
NCUA has filed a total of five lawsuits related to the RMBS: two against RBS Securities, one against Goldman Sachs, one against JP Morgan Chase, and one against Wells Fargo Securities LLC (formerly Wachovia Capital Markets LLC).
In addition to the tentative ruling from the court in California that indicates a dismissal is likely in the RBS Securities suit there, the U.S. District Court in Kansas overseeing the Wachovia case has ordered NCUA to show cause why that suit shouldn't be dismissed for lack of prosecution (News Now Feb. 6).
NCUA's suits against Citigroup and Deutsche Bank Securities were settled for a combined $165.5 million, with neither bank admitting any fault (News Now Nov. 15).