The National Credit Union Administration (NCUA) is exploring legal remedies against firms that sold faulty MBS that later played a key role in the failure of a handful of corporate credit unions (CUs).

Although the regulator would not discuss specifics, NCUA spokesman John McKechnie said the agency, "is taking all appropriate actions to preserve options to seek redress for the losses incurred in connection with the corporate failures."

Regarding the failure of WesCorp Federal Credit Union, the regulator is focusing attention on Wall Street underwriters that sold the California corporate CU MBS that later caused its failure. In particular, regulators are focusing on the relationship between the San Dimas-based WesCorp and Countrywide Financial Corp., which was located just 50 miles away in Calabasas.

Besides being an originator and servicer of prime and nonprime mortgages, Countrywide – a registered broker/dealer – was an active underwriter that ran an MBS trading desk. (In that regard, it is considered a Wall Street firm.) 

NCUA's office of general counsel and attorneys at the Justice Department are sifting through the wreckage of WesCorp and four other corporate CUs to determine whether there are grounds to seek damages from underwriters and other outside parties that helped load them up with toxic MBS. 

A large concentration of WesCorp's MBS was associated with a single entity: Countrywide. As of the annual examination periods between August 2004 and February 2008, Countrywide had the highest single concentrations as originator and servicer of the underlying mortgage collateral within WesCorp's MBS portfolio.

But it is not clear what role Countrywide-issued MBS played in the failures of U.S. Central Federal Credit Union, Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union and Constitution Corporate, which together with the failure of WesCorp are projected to cost the NCUA $16 billion to resolve.

The Countrywide role is expected to be further probed more as the Inspector General conducts additional loss reviews on other CUs in the coming months.

Countrywide was bought by Bank of America in August 2008 but it's unclear how much legal liability the bank faces from business transactions entered into by Countrywide employees.

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