The National Credit Union Administration (NCUA) and the Royal Bank of Scotland (RBS) have reached a $1.1 billion agreement to settle two separate federal cases that arose out of RBS’s sale of residential mortgage-backed securities (RMBS) to two corporate credit unions that later failed and were placed into NCUA conservatorship.  The two complaints, pending in the District of Kansas and the Central District of California, alleged that RBS misrepresented the risks of RMBS investments, particularly the likelihood that borrowers would default on the mortgage loans underlying the transactions.

The Kansas suit revolves around RMBS that U.S. Central Federal Credit Union purchased in 2006 and 2007, which resulted in approximately $800 million in losses.  The California suit concerns RMBS purchases by the now-defunct Western Corporate Federal Credit Union.  Both suits survived RBS motions to dismiss last year.

The NCUA has settled numerous other RMBS claims against banks, including a $491 million settlement with Goldman Sachs in June, a $69 million settlement with UBS in June, and a $29 million settlement with Credit Suisse in March.  Last year, the NCUA reached a $225 million settlement with Morgan Stanley in December, inked a $378 million settlement with Barclays and Wachovia in October, and accepted a $129.6 million offer of judgment from RBS Securities in September concerning other failed credit unions.  The NCUA’s recoveries in RMBS matters now exceed $4.3 billion.

While the NCUA continues to pursue other RMBS claims against Credit Suisse and UBS Securities, more and more RMBS claims, like those of the U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, will continue to arise.