The NCUA board has filed a suit in federal court against HSBC Bank USA, claiming the bank violated state and federal law.
The agency, suing in its capacity as liquidating agent for five failed corporate credit unions, alleged that the bank did not fulfill its duties as trustee for 37 residential mortgage-backed securities trusts.
“As with the other trustees we have sued, HSBC failed to live up to its obligations under federal and state law, and we want the bank held accountable,” NCUA Board Chairman Debbie Matz said. “As our complaint states, instead of protecting the trusts and the certificate holders, HSBC sat by as the trusts wasted away. This failure caused significant harm to trust beneficiaries, including the corporate credit unions and ultimately consumer credit unions.”
According to the NCUA, WesCorp, U.S. Central, Members United, Southwest and Constitution purchased about $1.97 billion in residential mortgage-backed securities issued from the trusts between 2004 and 2007. Those securities had lost value and contributed to the failure of the five corporate credit unions.
“Defendant failed to even ensure the trusts had full possession of the original notes and mortgages and the mortgage loan files had been properly reviewed for irregularities,” the complaint read. “If Defendant had fulfilled its obligations, a significant percentage of the mortgage loans in the trusts would have been repurchased or substituted.”
The complaint also alleged that HSBC failed to provide required notices to certificate holders and other parties, and did not properly monitor loan servicers.
“Moreover, an overwhelming number of events alerted Defendant to the fact that the trusts suffered from numerous problems, yet it did nothing,” the complaint went on to read.
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