Coakley settlement worth $52 million
BOSTON (Legal Newsline) - Massachusetts Attorney General Martha Coakley announced a $52 million settlement on Monday with RBS Financial Products Inc. to settle allegations that it financed, purchased and securitized presumptively unfair residential loans.
RBS, formerly known as Greenwich Capital Financial Products Inc., is a subsidiary of the Royal Bank of Scotland.
"The securitization of subprime loans by investment banks is a major cause of the economic crisis," Coakley said. "Investment banks profited handsomely from those securitizations at the expense of homeowners. The only way we are going to return to a healthy economy is to hold these banks accountable in order to achieve real relief for homeowners. Today is another important step in those efforts for Massachusetts."
The payment will be made pursuant to an assurance of discontinuance filed earlier on Monday in Suffolk Superior Court. Under the terms of today's settlement, RBS will make a series of payments. Those payments include more than $40.2 million to be used for principal reduction and related relief for more than 700 Massachusetts subprime borrowers.
The payment for reduction and related relief affects numerous borrowers across the commonwealth with subprime loans allegedly securitized by RBS in 2006 and 2007 with a combination of risk features - primarily so-called ARM loans with introductory interest rates, high debt-to-income ratios and high loan-to-value ratios.
Other payments include a payment of more than $8.9 million to the commonwealth and a payment of more than $2.6 million to compensate state sub-entities, including municipalities most acutely affected by foreclosures of the RBS securitized loans.
RBS securitized loans from WMC Mortgage Corp., IndyMac, Countrywide, First Franklin and Fremont, packaging and selling the loans to the secondary market.
The settlement follows the resolution of similar matters, including a $60 million settlement between Coakley's office and Goldman Sachs in May 2009 that provided relief for the commonwealth and affected homeowners. In a June 2010 settlement with Coakley's office, Morgan Stanley paid $102 million in relief for the commonwealth and affected homeowners.
Over 700 Massachusetts borrowers will receive specific benefits from the RBS settlement that primarily includes reductions in the principal amount due on their loans and payments for foreclosure relief. The eligible borrowers have loans that were securitized by RBS and include the features that Massachusetts courts have held to be presumptively unfair, in violation of the Consumer Protection Act.
The loans allegedly include features such as an introductory period of three years or less, an introductory interest rate that is at least two percent lower than the fully-indexed rate, a fully indexed debt-to-income ratio of greater than 50 percent, and substantial pre-payment penalties,or pre-payment penalties that extended beyond the teaser period or a loan-to-value ratio over 97 percent.
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