The NCUA filed a new suit in federal court Friday that seeks to recover corporate losses. However, the suit against Deutsche Bank National Trust Co., differs from others in that the agency isn't accusing the bank of selling faulty paper, but rather, failing to fulfill its obligations as a trustee, according to NCUA Public Affairs Specialist John Fairbanks.
Five failed corporate credit unions — U.S Central FCU, Western Corporate FCU, Members United FCU, Southwest Corporate FCU and Constitution Corporate FCU — purchased $140 billion in residential mortgage-backed securities issued from the trusts between 2004 and 2007. Those securities lost value, contributing to the failure of all five corporates, the NCUA said.
“Trustees have the basic duty to protect, and Deutsche Bank National Trust Company failed to comply with the duties imposed by federal and state law,” NCUA Board Chairman Debbie Matz said in a Monday release. “This failure harmed trust beneficiaries, including the corporate credit unions. The NCUA will do all it can to pursue appropriate remedies and recoup the losses suffered by the credit union system.”
The NCUA's complaint claims the value of the securities depended on the quality of the pooled mortgage loans the trusts contained, and the bank, as trustee, had contractual and statutory duties to protect the interests of certificate holders.
The complaint also states that, despite knowing about defects in the mortgage loans, Deutsche Bank National Trust Company failed to provide required notices to certificate holders and other parties and failed to take timely action to force the repurchase, substitution, or cure of defective mortgage loans or otherwise preserve trust remedies.
Filing in New York's Southern District, the NCUA in court documents accused Deutsche Bank of violating the Trust Indenture Act of 1939 and the Streit Act.
The NCUA was represented in the action by attorneys from three law firms: Korein Tillery LLC of Chicago and St. Louis, Kellogg, Huber, Hansen, Todd, Evans & Figel of Washington and Wollmuth Mather & Deutsch of New York. NCUA General Counsel Michael McKenna and Associate General Counsel John Ianno were also listed as agency counsel in the court documents.
Rep. Darrell Issa (R-Calif.) was critical of contingency agreements the NCUA made with two of the law firms, Korein Tillery and Kellogg Huber, claiming federal agencies are prohibited from entering into contingency agreements. The NCUA countered, saying because it is an independent agency not funded by tax dollars, those rules did not apply.
To date, the NCUA has settled with corporate loss lawsuit defendants for more than $1.75 billion; net proceeds have offset corporate losses and eliminated the need for future corporate assessment payments made by federally insured credit unions.
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