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the latest se r v ic i ng Or ig i nat ion SECONDARY MARKET Stability a NCUA Sues over Sure Thing for Investors in 2013? $2.2B in WaMu Securities According to Neuberger Berman, the year ahead will bring a reduction in uncertainty and volatility for those investing in housing-related assets. s e c on da r y m a r k e t a na ly t ic s A new report from Neuberger Berman Group LLC indicates that 2013 will be a year of greater stability and a reduction in uncertainty and volatility for investors. Releasing macroeconomic analysis, the company touted diversification of assets and the appeal of real estate securities during the coming months. "The perception of vulnerability was always in the background, and it meant that investors kept their eyes on the macro," said Joseph Amato, president and CEO of Neuberger Berman. "Although there are continuing issues, we now have some confidence that we'll get more stability in 2013, and that should present outperformance opportunities." Sharing his commentary, Anthony Tutrone, the firm's global head of alternatives, noted that from an investment perspective, "slow and steady means businesses can plan and make rational decisions and investors can become less shell-shocked and more constructive about pursuing portfolio goals." Addressing inflation concerns among investors, Neuberger Berman focused on finding an approach that includes multiple asset classes. Brad Tank, chief investment officer of the company's fixed income unit, elaborated on successful asset allocation structures, noting, "Commodities and real estate securities are highly correlated with long-term nominal inflation and senior bank debt is also appealing. For institutions, it can make sense to create a basket of inflationcorrelated assets as an overlay on existing portfolios that reduces vulnerability to inflation but doesn't dampen your return profile." Concluding the group's report, Eric Weinstein, Neuberger Berman's chief investment officer for its fund of hedge funds team, stated, "While there have been material headwinds for hedge funds broadly, a number of strategies delivered strong absolute and relative returns for much of 2012, including residential mortgage bond securities and distressed debt. We see the potential for continued success in these strategies." "Although there are continuing issues, we now have some confidence that we'll get more stability in 2013, and that should present outperformance opportunities." — Joseph Amato, Neuberger Berman. 74 | The M Report Filing its 10th lawsuit against a major financial entity, the group has entered into another legal battle over the misrepresentation of pre-crisis mortgagebacked securities. T he National Credit Union Administration (NCUA) filed its 10th action against a major Wall Street investment firm—this time, the defendant is JPMorgan Securities. NCUA's suit revolves around mortgage-backed securities (MBS) underwritten and sold by Washington Mutual Bank (WaMu), which was acquired by JPMorgan in 2008 following its collapse. According to NCUA's complaint, WaMu misrepresented the underwriting quality of $2.2 billion in MBS sold to U.S. Central, Western Corporate, and Southwest Corporate federal credit unions. All three corporate credit unions became insolvent and were placed into NCUA conservatorship and liquidated. The complaint alleges that underwriting guidelines described in the offering documents for the MBS sales were "systematically abandoned" and led the credit unions to believe the risk involved was minimal. The complaint goes on to allege that WaMu inflated the salaries of loan applicants and accepted unofficial documents as verification of employment, citing a 2008 report from the New York Times that described in detail "the relentless pressure to churn out loans while disregarding borrowers' incomes and assets." Other defendants named in the complaint include WaMu Capital Corp., Long Beach Securities Corp., and WaMu Asset Acceptance Corp. "The damage caused by the actions of firms like Washington Mutual has been extremely expensive to contain and repair, and that job isn't finished, yet," said NCUA Board Chairman Debbie Matz. "All the credit unions we supervise and insure have had to share this burden, so it's only right that the people who caused the damage be required to pick up that burden, as well." The lawsuit is not NCUA's first action against JPMorgan Securities. The agency filed suit against the bank in June 2011 for damages related to its own securities and again in December 2012 for losses related to Bear Stearns. A representative for JPMorgan Chase did not immediately return a request for comment. NCUA has similar actions pending against Barclays Capital, Credit Suisse, Goldman Sachs, and UBS, to name a few. To date, the agency has settled claims worth more than $170 million with Citigroup, Deutsche Bank Securities, and HSBC.