HSBC must face U.S. lawsuit over failed credit unions

by: Jonathan Stempel

A federal judge rejected HSBC Holdings Plc’s bid to dismiss a U.S. lawsuit claiming that its failure to perform its duties as trustee for $2.37 billion of residential mortgage-backed securities contributed to the downfall of five federal credit unions.

U.S. District Judge Shira Scheindlin in Manhattan on Monday night said the National Credit Union Administration had standing to sue even though most of the debt had been resecuritized, and the new trustee refused to sue HSBC on its behalf.

The lawsuit is one of many in which the NCUA is seeking to recover investment losses that led to the 2009 and 2010 failures of the U.S. Central, Western Corporate, Constitution Corporate, Members United Corporate and Southwest Corporate credit unions.

Some lawsuits targeted banks that allegedly sold securities backed by defective residential mortgages. Other lawsuits targeted trustees who allegedly failed to monitor loan servicers or to require banks to buy back defective loans.

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