NCUA: Private Label MBS Concentrations Killed WesCorp
Increasing concentrations of non-agency MBS drove Western Corporate FCU to failure, NCUA said in its amended complaint against former directors and officers yesterday in U.S. District Court.
In 2002, WesCorp's investment concentration policy restricted private label MBS to 950% of capital. That limit was raised to 1700% of capital in 2003 and 2150% of capital in 2005, reaching a high of 2300% in December 2007, the agency detailed.
Officer defendants never proposed, and director defendants never adopted, any concentration limits or concentration reporting for Option ARM MBS or lower tranche investments, NCUA said. Instead, WesCorp reported only ratings and FICO scores.
According to the complaint, director defendants "generally attended" Asset/Liability Committee meetings, where officer defendants presented information about the state of the economy, the investment climate and WesCorp's specific investment strategy. They also discussed rising interest rates and slowing housing activity in 2005, the complaint said. However, defendants failed to re-evalute the strategy as economic conditions changed, the complaint said.
NCUA seeks more than $1 billion in damages from officer and director defendants, accusing them of breach of fiduciary duties and gross negligence.
During the first six years of former Western Corporate FCU President/CEO Robert Siravo's leadership, WesCorp doubled its net interest income by borrowing to invest in private label mortgage backed securities. Borrowings increased from $420 million to $1.28 billion during Siravo's first two years alone, the NCUA Board charged in its amended complaint against former WesCorp officers and directors.