Goldman Sachs this week asked a federal court in Los Angeles to dismiss a billion-dollar private label MBS related lawsuit brought against the firm by the National Credit Union Administration.

In court pleadings tied to the failure of two corporate credit unions – U.S. Central FCU and WesCorp FCU – Goldman argued the risks associated with $1.1 billion of mortgage-backed securities it underwrote for the two corporate giants were adequately disclosed in voluminous offering prospectuses.

“The offering documents included extensive disclosures that informed the Credit Unions about the risky nature of the underlying loans, including disclosures about the 'substantial' number of nonconforming loans and nontraditional loan products,” Goldman told the U.S. District Court for the Central District of California in a motion to dismiss the case.

It continued: “For example, the offering documents disclosed that loan originators frequently made exceptions to stated underwriting ‘guidelines,' which themselves were 'less stringent' than those promulgated by Fannie Mae or Freddie Mac and that loans issued pursuant to these less-stringent guidelines risked higher rates of delinquencies, defaults and foreclosures than loans underwritten under the Fannie Mae or Freddie Mac guidelines.”

The offering documents, says the Wall Street bank, “also disclosed that originators used a variety of alternative lending programs that limited or eliminated standard disclosure or verification requirements, including with regard to borrowers' income, assets and employment.”

Since the March 2009 failure of the corporate giants, “NCUA has cobbled together a set of hindsight theories about what it now asserts must have been inaccuracies in the offering documents,” said the Wall Street bank.

In its suit, filed in August, NCUA charges that Goldman is guilty of violating federal and state securities laws, as well as misrepresentations in the sale of securities to U.S. Central and WesCorp.

The suit claims the sellers and underwriters of the questionable securities made numerous material misrepresentations in the offering documents.

These misrepresentations, according to NCUA, caused the corporate giants to believe the risk of loss associated with the investment was minimal, when in fact the risk was substantial.

In its motion to dismiss, Goldman says the two corporates were sophisticated investors that bought $30 billion of residential MBS between them and were issued comprehensive prospectuses before they were sold the doomed investments.

The Wall Street bank also notes that NCUA itself has blamed other reasons for the defaults of the MBS which caused the demise of U.S. Central and WesCorp, including in a civil suit accusing the officers and directors of WesCorp with negligence in the failure of the one-time $34 billion corporate.

NCUA, says Goldman, also issued numerous public statements blaming the failure of the corporate on adverse market conditions. “NCUA's allegations are “not only compatible with” but “more likely explained by” the collapse of the housing market,” says Goldman. “Indeed, NCUA's claims here are contradicted by its prior public acknowledgment that “the losses associated with the private-label mortgage-backed securities that were held by corporate credit unions” were “cause(d)” by “the overall global economic crisis that emerged in 2007.”

Goldman notes that NCUA's own Office of the Inspector General concluded that U.S. Central and WesCorp failed because their management pursued an “unreasonable” and “aggressive” investment strategy in RMBS.

Goldman is one of four Wall Street banks sued by NCUA for the sale of private label MBS to five failed corporate CUs.

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