Credit Union regulator, the NCUA said RBS ‘systematically abandoned’ rules that determined the quality of the mortgages used in the bonds.
The regulator said by wrongly categorising the bond risk, US Central Corporate Credit Union, a Kansas-based credit union, forced into liquidation by the regulator in March 2009, misjudged the riskiness of the bonds it was buying.
This is the latest in a series of actions taken by US authorities, pursuing alleged wrongdoing in the country’s mortgage market in the lead up to the financial crisis, reported The Telegraph.
A Senate report published in April stated that Wall Street banks sold about £1.48trn of Residential Mortgage Backed Securities (RMBS) to investors between 2004 and 2007, much of which collapsed in value when US house prices started to fall in the middle of 2006.
In this case, the NCUA’s case rests on the allegation “because the mortgages in the pools collateralising the RMBS were largely underwritten without adherence to the underwriting standards in the Offering Documents, the RMBS were significantly riskier than represented”.
The credit union bought the majority of the bonds in 2006 to 2007 and almost half of the mortgages used to make up the bonds were in delinquency by May of this year, lawyers claim.
RBS declined to comment on the allegations.
Meanwhile, the NCUA is also suing JPMorgan Chase also for misreopresenting the risks in a RMBS sale, and seeking $800m in damages for both suits.
Meanwhile, RBS shares fell on Monday as the bank sold hundreds of millions of its own shares to pay bonuses to its staff.
RBS shares closed down 4.4pc at 38.51p after the bank sold 356m shares for its employees, mainly investment bankers, who received part of their bonus for 2009 in deferred shares.
Staff, largely from RBS’s global banking and market’s business were awarded bonuses worth £1.3bn in 2009 despite the bank’s losses.
