HSBC will pay a $765M penalty over claims involving its packaging, marketing, and sale of residential mortgage-backed securities prior to the 2008 economic crisis. According to the US Attorney Bob Troyer, from the beginning HSBC employed a due diligence process that it knew was ineffective, “chose” to place faulty mortgages in deals, and disregarded these problems even as it sold the RMBSs to investors. As a result, contends the US government, investors, including federally-insured financial institutions that bought the HSBC Residential Mortgage-Backed Securities that were backed by faulty loans, sustained “major losses.”
HSBC had touted using a proprietary model that would choose 20% of the riskiest loans for further examination and another 5% that would be randomly chosen. The government, however, claims that the financial firm’s trading desk exerted undue influence on which loans would be securitized and sometimes failed to employ a random sample. Outside vendors then studied the chosen loans.
The US alleges that even when a number of loans were marked as low grade, HSBC “waived” them through or regraded them, and concerns about loans that had defaulted right away were purportedly disregarded. The bank even allegedly continued to buy loans from an originator who was found to likely be providing loans that were fraudulent.
Nomura Settles RMBS Fraud Claims for $480M
Nomura Holding America (NMR) and a number of its affiliates will pay $480M to resolve residential mortgage-backed securities fraud claims. According to US Justice Department the financial holding company knew that it was packaging defective mortgage loans into securities and was not honest with investors about their poor quality. As a result, investors, including retirement funds, federally-insured financial institutions, and university endowments suffered substantial losses.
Nomura is accused of telling investors that the loans met due diligence scrutiny when they either had been based on appraisals that were fraudulent or did not satisfy underwriting guidelines. The federal government contends that even after Nomura’s own due diligence team cautioned that loan originators were “extremely dysfunctional” and that the RMBSs were problematic, the company didn’t change the way it marketed the securities to investors.
Despite settling, Nomura is not denying or admitting to wrongdoing.
This is not the first time Nomura has had to pay to settle mortgage-backed securities fraud related claims. Along with Royal Bank of Scotland PC (RBS), the company paid $839M to resolve an MBS fraud case brought by the Federal Housing Finance Agency on behalf of mortgage agencies Freddie Mae and Fannie Mac.
Unfortunately, many investors lost money because banks sold them mortgage-backed securities backed by poor quality or faulty loans prior to the housing meltdown. A few other banks to settle with federal regulators over mortgage-backed securities fraud claims include JP Morgan Chase (JPM), which paid $13B, Bank of America (BAC), which settled for $16.65B, and Deutsche Bank (DB) for $7.2B.
RMBS Fraud Attorneys
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HSBC Agrees To Pay $765 Million In Connection With Its Sale Of Residential Mortgage-Backed Securities, Justice.gov, October 9, 2018