Defunct Credit Union Takes Star Role in S&P Fraud Case

Thursday, 07 Feb 2013 08:11 AM

By John Morgan

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A collapsed credit union in San Dimas, Calif., may end up as a prime player in the Department of Justice (DOJ)’s high-profile case against Standard & Poor’s.

Western Federal Corporate Credit Union, or WesCorp as it was known, was once the largest credit union in the nation, but is now defunct.

The federal case filed against S&P this week cites WesCorp as a significant victim of toxic mortgage bonds that got overly high marks from S&P, the Los Angeles Times reported.

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

In 2009, government regulators seized control of WesCorp after it suffered nearly $9 billion in losses from its investments in mortgage-backed securities — the ill-fated subprime instruments that helped plunge the nation into financial crisis.

The Justice Department filed a civil fraud case against S&P this week.

The DOJ said $23 billion WesCorp collapsed after suffering massive losses on residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) rated by S&P.

“Across the seven counties in my district, we had huge numbers of homeowners who took out subprime mortgage loans, many of which were made by some of the country’s most aggressive lenders only because they later could be securitized into debt instruments that were given flawed ‘AAA’ ratings by S&P,” said Andre Birotte, U.S. Attorney of the Central District of California.

“This led to an untold number of foreclosures in my district. In addition, institutional investors located in my district, such as WesCorp, suffered massive losses after putting billions of dollars into RMBS and CDOs that received flawed and inflated ratings from S&P,” Birotte said.

The WesCorp losses forced 90 of its member credit unions below 7 percent net worth because of the capital they had to write off, the Credit Union Times reported.

WesCorp’s collapse has been the subject of continued litigation, according to the Times. In 2011, federal regulators sued Royal Bank of Scotland for $629 million related to mortgage securities it sold WesCorp. In 2010, regulators sued two former WesCorp executives for adding millions of dollars to their retirement packages before WesCorp collapsed.

WesCorp was a corporate credit union. Such wholesalers are owned by the retail credit unions they serve, which in turn are owned by their own members. WesCorp was the largest of 27 corporate credit unions in the United States when it was seized, with 1,100 member retail credit unions.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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