Reuters-

Morgan Stanley is being sued by a U.S. credit union regulator to recover losses on more than $566 million of residential mortgage-backed securities sold to two corporate credit unions that later failed.

The National Credit Union Administration said on Friday that Morgan Stanley made misrepresentations in offering documents for securities sold between 2004 and 2007 to the U.S. Central Federal Credit Union, once the largest federally chartered corporate credit union, and the Western Corporate Federal Credit Union.

“Originators had systematically abandoned the stated underwriting guidelines in the offering documents,” according to an Aug. 16 complaint filed in a Kansas federal court. “A material percentage of the loans were all but certain to become delinquent or default shortly after origination. As a result, the RMBS were destined from inception to perform poorly.”

[REUTERS]

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