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Feds Sue RBS Over Mortgage-Backed Securities

Feds Sue RBS Over Mortgage-Backed Securities

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Published by FindLaw
The National Credit Union Administration has filed a lawsuit against the Royal Bank of Scotland regarding its underwriting of residential mortgage-backed securities. The NCUA alleges that the bank's offering documents for the securities contained untrue statements of material fact or failed to state material facts, and misrepresented the securities as posing less of a risk than they actually did. As a result, the NCUA argues, several credit unions failed and required a bailout by the NCUA.
The National Credit Union Administration has filed a lawsuit against the Royal Bank of Scotland regarding its underwriting of residential mortgage-backed securities. The NCUA alleges that the bank's offering documents for the securities contained untrue statements of material fact or failed to state material facts, and misrepresented the securities as posing less of a risk than they actually did. As a result, the NCUA argues, several credit unions failed and required a bailout by the NCUA.

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Published by: FindLaw on Jun 21, 2011
Copyright:Public Domain

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06/24/2013

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 IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF KANSAS
NATIONAL CREDIT UNIONADMINISTRATION BOARD, asLiquidating Agent of U.S. Central FederalCredit Union,Plaintiff,v.RBS SECURITIES, INC., f/k/aGREENWICH CAPITAL MARKETS, INC.,GREENWICH CAPITAL ACCEPTANCE,INC., FINANCIAL ASSET SECURITIESCORP., FREMONT MORTGAGESECURITIES CORP., RESIDENTIALFUNDING MORTGAGE SECURITIES II,INC., INDYMAC MBS, INC., NOVASTARMORTGAGE FUNDING CORP.,NOMURA HOME EQUITY LOAN, INC.,LARES ASSET SECURITIZATION, INC.,SAXON ASSET SECURITIES CO., andWACHOVIA MORTGAGE LOAN TRUST,LLC,Defendants.)))))))))))))))))))))))))))) Case No. _______________________JURY TRIAL DEMANDED
COMPLAINT
Case 2:11-cv-02340-RDR -KGS Document 1 Filed 06/20/11 Page 1 of 182
11-cv-2340 RDR/KGS
 
 TABLE OF CONTENTSPage
 I.
 
NATURE OF THE ACTION ............................................................................................. 1
 
Table 1
................................................................................................................................ 3
 
Table 2
................................................................................................................................ 5
 
II.
 
PARTIES AND RELEVANT NON-PARTIES ................................................................. 6
 
III.
 
JURISDICTION AND VENUE ......................................................................................... 9
 
IV.
 
MORTGAGE ORIGINATION AND SECURITIZATION PROCESS ........................... 10
 
Figure 1
............................................................................................................................. 13
 
V.
 
RMBS CREDIT RATINGS AND CREDIT ENHANCEMENT ..................................... 13
 
Table 3
.............................................................................................................................. 14
 
VI.
 
U.S. CENTRAL’S PURCHASES .................................................................................... 16
 
Table 4
.............................................................................................................................. 17
 
VII.
 
THE ORIGINATORS SYSTEMATICALLY DISREGARDED THEUNDERWRITING GUIDELINES STATED IN THE OFFERINGDOCUMENTS .................................................................................................................. 19
 
A.
 
The Surge in Mortgage Delinquency and Defaults Shortly After theOfferings and the High Originate-to-Distribute Practices of theOriginators Demonstrates Systematic Disregard of UnderwritingStandards ............................................................................................................... 20
 
Table 5
.............................................................................................................................. 21
 
Table 6 
.............................................................................................................................. 31
 
B.
 
The Surge in Actual Versus Expected Cumulative Losses is Evidenceof the Originators’ Systematic Disregard of Underwriting Standards .................. 31
 
C.
 
The Collapse of the Certificates’ Credit Ratings is Evidence of Systematic Disregard of Underwriting Guidelines ............................................... 45
 
D.
 
Revelations Subsequent to the Offerings Show That the OriginatorsSystematically Disregarded Underwriting Standards ........................................... 45
 
1.
 
The Systematic Disregard of Underwriting Standards Was Pervasive asRevealed After the Collapse ..................................................................... 46
 
Case 2:11-cv-02340-RDR -KGS Document 1 Filed 06/20/11 Page 2 of 182
 
 
ii2.
 
American Home’s Systematic Disregard of Underwriting Standards ...... 51
 
3.
 
Countrywide’s Systematic Disregard of Underwriting Standards ............ 55
 
4.
 
First National Bank’s Systematic Disregard of Underwriting Standards . 63
 
5.
 
Fremont’s Systematic Disregard of Underwriting Standards ................... 65
 
6.
 
Homecomings Financial Network’s Systematic Disregard of UnderwritingStandards ................................................................................................... 67
 
7.
 
IndyMac Bank’s Systematic Disregard of Underwriting Standards ......... 69
 
8.
 
Option One Mortgage Corporation’s Systematic Disregard of Underwriting Standards ............................................................................ 73
 
9.
 
NovaStar’s Systematic Disregard of Underwriting Standards.................. 75
 
10.
 
Silver State Mortgage’s Systematic Disregard of Underwriting Standards................................................................................................................... 79
 
11.
 
WaMu’s Systematic Disregard of Underwriting Standards...................... 80
 
VIII.
 
THE OFFERING DOCUMENTS CONTAINED UNTRUE STATEMENTSOF MATERIAL FACT..................................................................................................... 90
 
A.
 
Untrue Statements Concerning Evaluation of the Borrower’s Capacityand Likelihood to Repay the Mortgage Loan ....................................................... 94
 
B.
 
Untrue Statements Concerning Reduced Documentation Programs .................. 114
 
C.
 
Untrue Statements Concerning Loan-to-Value Ratios ....................................... 121
 
D.
 
Untrue Statements Concerning Credit Enhancement ......................................... 124
 
IX.
 
THE CLAIMS ARE TIMELY........................................................................................ 128
 
Table 7 
............................................................................................................................ 129
 
X.
 
CLAIMS FOR RELIEF .................................................................................................. 133
 
COUNT ONE Section 11 of the Securities Act (First Franklin Mortgage LoanTrust 2006-FF16, Fremont Home Loan Trust 2006-3, Soundview LoanTrust 2006-WF2, and Soundview Home Loan Trust 2007-OPT1) .................... 133
 
COUNT TWO Section 11 of the Securities Act (Fremont Home Loan Trust2006-D) ............................................................................................................... 134
 
Case 2:11-cv-02340-RDR -KGS Document 1 Filed 06/20/11 Page 3 of 182

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