NCUA Accuses Morgan Stanley Of $556M Mortgage-Backed Securities Fraud

The National Credit Union Administration is suing Morgan Stanley (MS) for mortgage-backed securities fraud. In its MBS lawsuit, the NCUA said that it misrepresented $556 million of the securities that it sold to two credit unions, Western Corporate Federal Credit Union and U.S. Central Federal Credit Union, which are now no longer in operation.

Morgan Stanley is just one of several banks, including Barclays (BCS) and Goldman Sachs (GS) to get hit by securities cases accusing them of strapping such unions with millions of dollars in beleaguered loans. The bank and its affiliates are being blamed for purportedly making misleading statements about the risks involved, as well as about the underwriting standards for originating home loan securities that sold between 2006 and 2007.

According to the regulatory agency’s MBS lawsuit, the originators were systematic about moving away from the underwriting guidelines stated in the offering documents and that the securities were headed toward failure from “inception.” Because of this, contends the complaint, WesCorp and US Central suffered losses in the million dollars as the housing market collapsed and they eventually became insolvent. They both were put into conservatorship and later liquidated.

NCUA believes that it was the financial firms’ selling of faulty securities that led to the credit union industry crisis. The regulator is seeking civil penalties from Morgan Stanley.

As the receiver for credit unions that failed, NCUA has submitted numerous residential mortgage-backed securities fraud lawsuits against firms on Wall Street. Already, it has collectively settled its RMBS fraud cases against Citibank (C), Bank of America (BAC), HSBC, and Deutsche Bank (DB) for over $335 million.

National Credit Union Administration

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