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Court keeps NCUA N.Y. RMBS suit alive

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NEW YORK (5/16/14)--The District Court of New York has denied a motion to dismiss a lawsuit involving the National Credit Union Administration and Wachovia Capital Markets, LLC, now known as Wells Fargo Securities, LLC.
This is the latest in a series of lawsuits brought by the NCUA to various banking institutions on behalf of several corporate credit unions that purchased large amounts of residential mortgage-backed securities in the years between 2005 and 2007 and have since been liquidated. NCUA's complaints generally assert that the offering documents used to sell residential MBS contained material misstatements and/or omissions.
"This is the latest in a series of wins NCUA has had recently when it comes to these type of cases," said Robin Cook, assistant general counsel for special projects for Credit Union National Association. "We commend NCUA for their continued hard work on this issue."
In this case, the NCUA is serving as the liquidating agent for Southwest Corporate FCU and Members United Corporate FCU. Southwest Corporate FCU purchased two RMBS certificates from what was then called Wachovia Capital Markets, in June and December of 2006, for a total of $25,738,350. Both certificates were rated AAA at the time of purchase but were downgraded to junk status by mid-2009, and by June 2013 approximately 25% of the loans for each certificate were delinquent.
The NCUA has claimed that American Mortgage Network, Inc. (AmNet), which originated 100% of the loans in the first certificate, known as AMN1, had a high percentage of "originate-to-distribute" loans, which it said encourages shoddy underwriting practices because the securitization of mortgage loans breaks down the direct relationship between the borrower and the lender.
Wachovia claimed that a forensic analysis of AMN1 "found materially higher LTV (loan-to-value) ratios and lower owner-occupancy rates" than those listed in the offering documents by the NCUA.
The court found that the NCUA has plausibly pled its claims related to the underwriting conduct for loans contained in the first certificate, noting that while there is "no single set of allegations that every plaintiff must include to state a plausible claim," NCUA presented enough factual content to allow the court to draw a reasonable inference.
In 2006, the year AMN1 was sold, AmNet had a 90.3% originate-to-distribute rate, and within one year of securitization, more than 5% of the mortgages in that certificate were delinquent or in default, and has only worsened in later years, rising to 25% by June 2013.
"These allegations, when viewed in their totality, create a plausible inference that AmNet systematically failed to comply with its reported underwriting guidelines," reads the decision.
Wachovia also attempted to have the court dismiss any figures involving loan-to-value (LTV) ratio, arguing that LTV ratios are based upon appraisals that are a matter of opinion, meaning that the NCUA failed to show "that the estimates were both objectively false and disbelieved by the speaker when made."

However, the court ruled that some of the LTV ratios were calculated on purchase price for the property, not appraisals, and are "therefore clearly representations of fact." Also, that an appraisal can be a statement of fact in that it "represents an appraiser's true belief as to the value of the property."

Housing finance reform passes committee 13-9

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WASHINGTON (5/16/14)--Despite the announcement of six Senate Democrats late last week that they would not support a housing finance reform overhaul drafted by Senate Banking Committee Chair Tim Johnson (D-S.D.) and ranking member Mike Crapo (R-Idaho), the committee approved that bill (S. 1217) by a 13-9 vote Thursday.

Credit Union National Association President/CEO Bill Cheney, following the vote, said, "It's critical that government-sponsored enterprise reform ensures equal and competitive access for credit unions and other small lenders to the housing finance market--and avoids further concentration of the primary and secondary mortgage markets to Wall Street and the largest of lenders.

"This legislation takes significant steps toward accomplishing both. Our thanks to Chairman Tim Johnson and ranking member Mike Crapo for their leadership."

The bill is intended to redesign the nation's housing finance reform system to address problems that caused and resulted from the country's recent mortgage market and economic meltdown.

CUNA worked closely with the committee and its staff to secure changes to the original draft that addressed:
  • The bill's regulatory burden on credit unions and community banks;
  • Issues to ensure that the housing finance market remains accessible to credit unions and other smaller institutions; and,
  • Giving credit unions, and community banks, representation in governance of the new federal entities envisioned under the proposal.
CUNA also advocated for an adopted increase of an assets cap--up to $500 billion from $15 billion--for participation in a mutual securitization company to provide credit unions and smaller lenders access to securitizing their mortgages.

Sam Whitfield, CUNA vice president of legislative affairs, also reiterated CUNA's thanks to the sponsors of the bill for listening to credit unions' concerns, and pledged CUNA's continued work with lawmakers as they make reforms happen.

"The Johnson-Crapo bill is a bipartisan effort with the majority of the committee members behind it, as shown by this vote. This monumental reform legislation takes into consideration the important role small lenders, like credit unions, have in the marketplace.  The prospect of full Senate consideration is unknown at this time, but it is widely agreed that S. 1217 will be a good starting place for future legislation," Whitfield added.

The committee summary of the bill describes it as being designed "to protect taxpayers from bearing the cost of a housing downturn; promote stable, liquid and efficient mortgage markets for single-family and multifamily housing; ensure that affordable, 30-year, fixed-rate mortgages continue to be available, and that affordability remains a key consideration; provide equal access for lenders of all sizes to the secondary market; and facilitate broad availability of mortgage credit for all eligible borrowers in all areas and for single-family and multifamily housing types."

April open meeting posted on NCUA site

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ALEXANDRIA, Va. (5/16/14)--The video of the April open meeting of the National Credit Union Administration board is now available online.

The meeting's agenda included four items:
  • The National Credit Union Share Insurance Fund quarterly performance review;
  • A community charter expansion request from CME FCU, Columbus, Ohio, with $224 million in assets;
  • A proposed rule on associational common bond requirements for federal credit unions; and
  • A final rule on credit union capital planning and stress testing for federally insured credit unions with more than $10 billion in assets.
Archived videos of past board meetings may be viewed online, and each video remains on the site for one year.

The board actions page of the NCUA's website has more information, including board agendas, which are posted one week in advance of each open meeting, and copies of board action bulletins, which summarize the meetings, board memorandums and other documents.

Use the resource links for more information.

Underserved FOM request, 10-year reg review on short NCUA agenda

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ALEXANDRIA, Va. (5/16/14)--The National Credit Union Administration will host its monthly meeting Thursday, starting at 10 a.m. (ET) at its Alexandria headquarters. The meeting will take place in the seventh-floor boardroom.
The following matters will be considered:
  • Notice and request for comment, economic growth and Regulatory Paperwork Reduction Act review:  This includes a decennial review of its regulations, using notice and comment procedures, in order to identify those that impose unnecessary regulatory burden on insured depository institutions;
  • A request from AERO FCU, Glendale, Ariz., with $205 million in assets, request to add two underserved areas; and
  • Corporate Stabilization Fund quarterly review.
Use the resource link for more information.