In filing to dismiss its lawsuit alleging securities fraud, lawyers for Wachovia Capital Markets asked the NCUA a question that has haunted the regulator ever since the collapse of U.S. Central FCU: why didn't the corporate more carefully consider the risks involved in purchasing $122 million worth of Alt-A backed MBS?
According to court documents filed April 4 in Kansas City, Wachovia, since purchased by Wells Fargo, contests NCUA's claim that the MBS offering documents contained "untrue statements of material fact or omitted to state material facts" in violation of the federal Securities Act of 1933 and the Kansas Uniform Securities Act, and loan originators "systematically abandoned" disclosed underwriting guidelines.
Not so, says Wachovia's legal team. For example, disclosures provided to the corporates revealed that 73% of the adjustable rate, interest-only loans offered by Wachovia required little or no documentation of borrowers, and that "exceptions to the underwriting standards are permitted when compensating factors are present," court documents state.
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Wachovia disclosures also revealed that most of the loans in the pools would not meet Fannie Mae or Freddie Mac requirements, that they are likely to experience rates of delinquency, foreclosure or bankruptcy that are higher, and that may be substantially higher, than those underwritten to conforming guidelines, and that ratings could be lowered or withdrawn.
The motion to dismiss also contains numerous technicalities, including challenges to NCUA's applicable statutes of repose and statutes of limitations. That motion follows federal Judge George Wu's ruling in December that a similar NCUA suit against RBS Securities, filed in WesCorp's federal district in Los Angeles, failed to meet required statutes of limitations.
Wachovia also picked apart the legal precedents NCUA cited in its claim, including one from a case that has since been dismissed for failure to state a claim.
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