Lawyers for Wachovia Capital Markets filed documents in Kansas City Federal Court asking the court to dismiss NCUA's securities fraud case against the firm now owned by Wells Fargo. Central to Wachovia's argument is a question that has haunted the NCUA ever since the collapse of U.S. Central FCU: Why didn't the corporate more carefully consider the risks involved in purchasing $122 million worth of alt-A-backed MBS?

According to court documents, Wachovia contests NCUA's claim that the MBS offering documents contained "untrue statements of material fact or omitted to state material facts" in violation of the federal Securities Act of 1933 and the Kansas Uniform Securities Act. The agency claims loan originators "systematically abandoned" disclosed underwriting guidelines.

Not true, say Wachovia's legal team. Instead, Wachovia asserts it provided proper risk disclosures to U.S. Central, including warnings that 73% of the adjustable-rate, interest-only loans offered by Wachovia required little or no documentation of borrowers and that "exceptions to the underwriting standards are permitted when compensating factors are present." Wachovia disclosures also revealed that most of the loans in the pools would not meet Fannie Mae or Freddie Mac requirements, that they were likely to experience higher rates of delinquency, foreclosure or bankruptcy, and ratings could be lowered or withdrawn.