KANSAS CITY, Kan. (CN) - Wachovia Capital Markets' disregard for industry underwriting guidelines forced two of the nation's largest federal credit unions into involuntary liquidation, after they lost $127 million in residential mortgage-backed securities, the National Credit Union Administration Board claims in Federal Court.
The U.S. Central Federal Credit Union and Western Corporate Federal Credit Union were forced into liquidation in March 2009, after the securities tanked.
The credit unions lost more than $127 million in 12 months from the securities, all of which the NCUAB claims were artificially inflated to have a "triple-A" rating.
The losses were 14 times more than expected and the NCUAB claims this excessive rate shows that Wachovia systematically disregarded underwriting standards.
"The total collapse in the credit ratings of the RMBS U.S. Central and WesCorp purchased, typically from triple-A to non-investment speculative grade, is evidence of the originators' systematic disregard of underwriting guidelines, amplifying that these securities were impaired from the outset," according to the complaint.
The NCUAB seeks damages for violations of the Securities Act.
Any recovery made will reduce the total losses from U.S. Central, the complaint states.
The NCUAB is represented by Norman Siegel, with Stueve Siegel Hanson of Kansas City, Mo.
Wachovia Capital, now known as Wells Fargo Securities, is the lone defendant.Follow @@joeharris_stl
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