Amid growing uncertainty in the market, Bank of America Corp (NYSE:BAC) has something to cherish. As per the reports, a U.S. District Judge in Manhattan has freed BAC from NCUA (National Credit Union Administration) claims. NCUA accused Bank of America along with U.S. Bancorp USB of failure to fulfill their assigned duties as RNBS (residential mortgage-backed securities) trustees.
The unexpected accusations resulted in massive losses of $6.8 billion to credit unions.
Road So Far
NCUA sued U.S. Bancorp and Bank of America for not been able to recover the losses worth $6.8 billion on RMBS after they turned bad. To take the proceedings ahead, NCUA filed a case against both the companies in the U.S. District Court for the Southern District of New York in 2014.
According to reports presented during the case hearings, a total of 98 RMBS trusts were sold to five credit unions between 2004-2007. These credit unions include renowned names like Constitution Federal Corporate Federal Credit Union, U.S. Central Federal Credit Union, Members United Corporate Federal Credit Union, Western Corporate Federal Credit Union, Southwest Corporate Federal Credit Union.
NCUA claimed that the Bank of America and U.S. Bancorp USB didn’t include important details in offering documents, and issued a number of misleading statements to hide their failure. These claims created uncertainty about their capability to handle the risk associated with this transaction. There were certain guidelines mentioned in the offering documents, which NCUA wanted credit unions to be aware of; however, both the trustee firms avoided these guidelines.
As a result of this ignorance, when the value of RMBS declined, the investment made by credit unions also suffered terribly. All the five credit unions associated with these RMBS collapsed in 2009-10 period, leading to an unexpected crisis in credit union industry.
Now that Katherine Forrest, U.S. District Judge, has rejected claims by NCUA, it will be great to see whether it takes any further action in the future.