In yet another mortgaged securities-related resettlement, Royal Bank of Scotland (RBS) has agreed to pay $500M to settle New York Attorney General Eric Schneiderman’s case accusing the bank of misrepresentations and deceptive practices related to it sale residential mortgage-backed securities (RMBS). $400M of the payment is consumer relief, while $100M is a fine that will go to the state.
NY’s probe concentrated on 44 mortgage securitizations that RBS issued leading up to the 2008 financial crisis. The NY AG said that during that time, due diligence vendors cautioned the bank that a lot of the loans it was buying were not in compliance with underwriting guidelines. Still, the bank bundled the loans and touted them as secure to investors, many of whom bought the RMBSs.
Schneiderman’s probe found that some of the mortgages backing the bonds at issue had over 100% loan to value ratios, meaning that “they were ‘underwater’.” Now, RBS is admitting that it sold mortgage bonds backed by loans that failed to abide by underwriting guidelines even as the bank maintained that they were, in fact, in compliance.
The bank also acknowledged that it had limited how much diligence it performed on mortgages, resulting in a lot of the loans being securitized even though no due diligence was conducted at all.
The NY AG said that even after a lot of securitized mortgages that were issued began to show signs that their loans were problematic, RBS kept buying and securitizing them from the same originators and the loans were still packaged and sold to investors. When the loan pools backing the securitizations lost billions of dollars in collateral losses, investors were subject to principal and interest payment shortfalls while their certificates’ market value dropped in value.
In the Statement of Facts in the NY AG’s case, RBS admits that ”countless” NY investors and homeowners were hurt and that the bank played a part in home values falling during the 2008 economic crisis.
Other settlements RBS has reached recently over its mortgage practices in the run-up to the financial meltdown:
- $125M with California
- $44M with the DOJ and the Trouble Asset Relief Programs’ Special Inspector General
- $120M with Connecticut
- $5.5M with the Federal Housing Finance Agency
- $1.1B and $129.6M with the NCUA (National Credit Union Administration)
The SSEK Partners Group is a securities fraud law firm. Contact our residential mortgage-backed securities fraud lawyers today so that we can help you explore your legal options. We represent institutional investors and high net worth individual investors.
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As LJM Preservation and Growth Fund Declines in Value and Announces Shut Down, Investors Suffer Losses, Stockbroker Fraud Blog, March 1, 2018
BitConnect Shutters Its Lending and Exchange Operation, Leaving Texas Investors With No Place to Trade Their BCC Currency, Stockbroker Fraud Blog, January 17, 2018
Royal Bank of Scotland Settles Mortgage-Backed Securities Fraud Case Brought by Pension Funds for $125M, Institutional Investor Securities Blog, December 29, 2017