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News Now

CU System
RBS response Insurers suit should target others
MADISON, Wis. (3/6/12)--RBS Securities Inc. has responded to a lawsuit filed by CUNA Mutual Group insurance companies seeking to require it to buy back $72 million in  mortgage-backed securities that the insurance companies bought before the financial crisis hit.

The suit, filed by CUNA Mutual Insurance Society, CUMIS Insurance Society, and MEMBERS Life Insurance Co., seeks rescission of 15 certificates in 10 separate residential mortgage backed securities  (RMBS)  they bought.

CUNA Mutual's complaint alleges that between 2004 and 2007, RBS had made "representations about the credit quality of the pools of mortgage loans collateralizing those RMBS." The supporting documents for the investments contained "untrue or misleading statements concerning the loans underlying each separate RMBS offering," and the  RMBS performed poorly and the certificates lost much of their value, CUNA Mutual maintained in its complaint.

RBS' motion to dismiss, filed Feb. 15 in the U.S. District Court for the Western District of Wisconsin  in Madison, said the company "did not make any of the alleged misrepresentations" in the suit.  "To the contrary, each of the alleged misrepresentations at issue was made either by originators (with respect to underwriting guidelines), borrowers (with respect to owner-occupancy), ratings agencies (with respect to credit ratings) and appraisers (with respect to loan-to-value ratios).  Indeed, RBS specifically disclaimed the making of these representations."

RBS's rebuttal also said that allegations aren't actionable misrepresentations. "The mere fact that the certificates suffered a decline in value in the intervening six-plus years that CUNA owned them does not plausibly suggest that misrepresentations were made in the offering documents," said RBS.

RBS also said nine of the 15 certificates at issue are time-barred and that CUNA Mutual's demand for a jury trial be "stricken because it has no right to a jury trial on its rescission claim."

"We disagree with the RBS claims and will respond accordingly in our court filings," said Rick Uhlmann, senior manager, media relations, at CUNA Mutual Group. "Again, the action we are taking is in the best interests of CUNA Mutual Group and its policyholders," he told News Now.

Five lenders who sold subprime mortgages have filed  for Chapter 11 bankruptcy, according to an earlier court document. They are Washington Mutual, First Magnus Financial Corp., Delta Funding Corp., New Century Mortgage Corp., and Fremont Investment & Loan.


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