The National Credit Union Administration Board launched a lawsuit against UBS Securities and Mortgage Asset Securitization Transactions this week, claiming the entities represented toxic, residential mortgage-backed securities as prime triple-A deals to two different credit union investors.

The credit unions Western Corporate Federal Credit Union (WesCorp.) and U.S. Central Federal Credit Union went belly up when numerous homeowners defaulted on mortgages backing RMBS deals they invested in.   

As the liquidating agent for the credit unions, NCUA fired off a multi-million lawsuit against UBS in its capacity as underwriter and seller of the RMBS deals and Mortgage Asset Securitization Transactions for its role as issuer.

Data provided by NCAU in the lawsuit suggests the two credit unions paid approximately $909.7 million for multiple RMBS deals that later defaulted, leaving the credit unions in a distressed state that led to their demise.

"The property values supporting the average loan-to-value ratio were routinely overvalued at the time of origination, rendering the average LTV ratios inaccurate," according to the complaint. "Indeed, a material percentage of the borrowers of the mortgages comprised the RMBS were all but certain to become delinquent or default shortly after origination. As a result, the RMBS were destined from inception to perform poorly."

The credit union association further alleges delinquencies and defaults on the mortgages backing the transactions rose to a rate of 6.16% within the first three months of issuance and to 23.44% within a year.