CARSON CITY, Nev. (Legal Newsline) - Nevada Attorney General Catherine Cortez Masto announced on Wednesday that RBS Financial Products will pay $42 million to settle its role in purchasing and securitizing subprime and payment option adjustable rate mortgages in Nevada.
RBSFP must commit to certain changes in its practices to the extent that it securitizes Nevada mortgages as part of an assurance of discontinuance filed in the Eighth Judicial District Court, while the $42 million will be used for payments to affected borrowers, mortgage fraud enforcement and foreclosure prevention, as well as attorney's fees and costs.
The settlement follows nearly two years of study into potential lender misrepresentations by such companies as Countrywide and Option One to Nevada consumers who took out subprime loans and payment options ARMs that RBS bought and securitized between 2004 and 2007.
The alleged misrepresentations include whether consumers were deceived by lenders about actual interest rates and payments on their loans, the appraised value of their property and the potential payment shock when initial "teaser" rates on mortgages expired.
The two-year study also examined if lenders originated loans with multiple risk features allowing them to lower borrowers' payments but not their debt.
Cortez Masto's office was concerned about the number of borrowers taking out loans who did not understood their ability to repay the loans or that they would have to refinance before the payment increase.
"I remain committed to enforcing Nevada's laws against the players - including those on Wall Street - that contributed to and profited from reckless and deceptive mortgage lending in Nevada," Masto said. "The payment from RBS will alleviate some of the injury to the Silver State and its residents. The changes to its securitization process should help make sure that we do not go down this road again."
RBS did not admit or deny any wrongdoing in agreeing to the settlement.