By Jonathan Stempel
Aug 30 (Reuters) - Morgan Stanley is being sued by aU.S. credit union regulator to recover losses on more than $566million of residential mortgage-backed securities sold to twocorporate credit unions that later failed.
The National Credit Union Administration said on Friday thatMorgan Stanley made misrepresentations in offering documents forsecurities sold between 2004 and 2007 to the U.S. CentralFederal Credit Union, once the largest federally charteredcorporate credit union, and the Western Corporate Federal CreditUnion.
"Originators had systematically abandoned the statedunderwriting guidelines in the offering documents," according toan Aug. 16 complaint filed in a Kansas federal court. "Amaterial percentage of the loans were all but certain to becomedelinquent or default shortly after origination. As a result,the RMBS were destined from inception to perform poorly."
Morgan Stanley spokeswoman Mary Claire Delaney declined tocomment. An NCUA spokesman said the regulator waited to issue astatement about the case until all defendants were served withthe complaint.
The NCUA said it has 11 lawsuits pending against banks,including JPMorgan Chase & Co on behalf of five creditunions it seized in 2009 and 2010 after the housing crisiscaused losses on more than $14 billion of RMBS that they bought.
Roughly half of the securities at issue in these lawsuitswere sold by JPMorgan, or Bear Stearns Cos or Washington MutualInc, both of which JPMorgan bought in 2008.
The NCUA got a boost on Tuesday when a federal appeals courtin Denver said the regulator could use an "extender" provisionin the Financial Institutions Reform, Recovery and EnforcementAct of 1989 to pursue some claims that would otherwise be deemedtoo late.
Based in Alexandria, Virginia, the NCUA has so far reached$335 million of settlements with Bank of America Corp,Citigroup Inc, Deutsche Bank AG and HSBCHoldings Plc.
The case is National Credit Union Administration Board v.Morgan Stanley & Co et al, U.S. District Court, District ofKansas, No. 13-02418.