For at least the sixth time in recent memory, the Royal Bank of Scotland reached a massive settlement related to its mortgage practices in the run-up to the housing crisis.
In just the last few years, RBS reached a $5.5 billion settlement with the Federal Housing Finance Agency; a $129.6 million settlement and a $1.1 billion settlement with the National Credit Union Administration; a $120 million settlement with the state of Connecticut, a $44 million settlement with the Department of Justice and the Special Inspector General for the Troubled Asset Relief Program; and a $125 million settlement with the state of California.
And this week brings another half-billion dollar settlement for RBS, this time with the state of New York.
New York Attorney General Eric Schneiderman announced this week that RBS agreed to a $500 million settlement with the state for the bank’s “deceptive practices and misrepresentations to investors in connection with the packaging, marketing, sale, and issuance of residential mortgage-backed securities” leading up to the financial crisis.
The settlement stipulates that RBS must pay a fine of $100 million to New York and provide $400 million in consumer relief to New York homeowners and communities.
This settlement brings RBS’ settlement total to more than $7 billion since late 2015.
According to Schneiderman’s office, as part of the settlement, RBS admitted to selling mortgage bonds to investors that were backed by loans that did not materially comply with underwriting guidelines, despite RBS’ claims that they did comply.
The settlement agreement states that the AG’s investigation focused 44 mortgage securitizations issued by RBS in 2006 and 2007 with an initial principal balance in excess of $52 billion.
According to Schneiderman’s office, during that time period, RBS’s due diligence vendors warned the bank that many of the loans that it purchased for securitization did not conform to underwriting guidelines, but RBS packaged the loans, told investors that the underlying loans were sound, and sold them anyway.
Schneiderman’s investigation showed that a number of mortgages backing the mortgage bonds in question had loan-to-value ratios over 100%.
Additionally, RBS admitted to limiting the scope of the diligence conducted on the mortgages, and therefore securitized large numbers of loans on which no diligence was performed.
Schneiderman’s office also stated that RBS’s review of securitized mortgages, many of which defaulted shortly after issuance, showed serious problems in the origination of the loans. “Nevertheless, after identifying these problems, RBS continued to purchase and securitize risky loans from the same originators, which it packaged and sold to unwitting investors,” Schneiderman’s office said.
“The conduct detailed in the Statement of Facts, which RBS admits, harmed countless New York homeowners and investors by contributing to the crash in home values during the financial crisis,” Schneiderman’s office added.
As part of the settlement, RBS will provide “significant community-level relief” to New Yorkers, including funds to spur the construction of more affordable housing, Schneiderman’s office said.
Additional money will be set aside to help New York communities transform their code enforcement systems, invest in land banks, and purchase distressed properties to keep them out of the hands of predatory investors, Schneiderman’s office added.
“While the financial crisis may be behind us, New Yorkers are still feeling the effects of the housing crash,” Schneiderman said in a statement.
“Home values plummeted. Vacant homes consumed neighborhoods. And for many New Yorkers, affordable housing fell out of reach. Today’s settlement is another important step in our comprehensive effort to help New Yorkers rebuild their lives and communities,” Schneiderman continued. “I am proud of the extraordinary housing programs these settlements have funded across New York, from Brookhaven to Buffalo – and today’s settlement will fund even more community revitalization initiatives for years to come.”
In a statement provided to HousingWire, RBS CEO Ross McEwan noted the steep costs the bank has paid for its “ambitions” in the mid-2000s.
“We have been very clear that putting our remaining legacy issues behind us is a key part of our strategy,” McEwan said. “I am pleased that we have reached this settlement with the New York State Attorney General in relation to RMBS issues which date back to 2004-2008. Settling these issues is a stark reminder of the heavy price we continue to pay for the global ambitions pursued by the bank in the run up to the crisis.”
