For Immediate Release - November 28, 2011

Royal Bank of Scotland to Pay $52 Million for Securitization Role in Subprime Mortgage Meltdown

Following Goldman Sachs and Morgan Stanley, RBS is the Third Securitization-Related Action Brought By Massachusetts In Fallout Of Economic Collapse; More Than 700 Massachusetts Homeowners Will Directly Benefit From Settlement

BOSTON – RBS Financial Products Inc. (“RBS”) will pay $52 Million to settle allegations that it financed, purchased, and securitized residential loans that were presumptively unfair under Massachusetts law, Attorney General Martha Coakley announced today.  The company, formerly known as Greenwich Capital Financial Products, Inc., is a subsidiary of the Royal Bank of Scotland. 

This is the third case brought by AG Coakley against investment firms following investigations into their securitization practices. Through today’s action, as well as actions brought against investment giants Morgan Stanley and Goldman Sachs, AG Coakley’s office has recovered more than $200 million in connection with securitization claims.

“The securitization of subprime loans by investment banks is a major cause of the economic crisis,” said AG Coakley.  “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 today in Suffolk Superior Court.  Under the terms of today’s settlement, RBS will make the following payments:

  • More than $40.2 Million to be used for principal reduction and related relief for more than 700 Massachusetts subprime borrowers. 
    • This affects numerous borrowers across the Commonwealth with subprime loans 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.
  • More than $8.9 Million payment to the Commonwealth.
  • More than $2.6 Million to compensate state “sub-entities,” including municipalities most acutely affected by foreclosures of the RBS securitized loans. 

Today’s settlement with RBS is part of an ongoing, multi-year, industry-wide investigation by AG Coakley.  As in similar enforcement actions, the Attorney General used Civil Investigative Demands to unravel the securitization process behind loans originated by subprime lenders in Massachusetts.  RBS securitized loans from Fremont, First Franklin, Countrywide, IndyMac and WMC Mortgage Corp., packaging and selling these loans to the secondary market.   

Attorney General Coakley’s Office was the first in the nation to hold securitizers accountable for their role in the subprime mortgage crisis.  Today’s settlement with RBS is the most recent settlement resulting from the AGO’s on-going investigation into the role of investment banks/securitizers in the financing, purchase and securitization of unfair residential mortgage loans.  It follows the resolution of these similar matters:

More than 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 following features, which Massachusetts courts have held to be “presumptively unfair,” in violation of the Consumer Protection Act:

  • an introductory period (“teaser period”) of three years or less;
  • an introductory interest rate (“teaser rate”) that is at least 2% lower than the fully-indexed rate (i.e., the rate that becomes effective at the end of the teaser period);
  • a fully indexed Debt-to-Income (“DTI”) ratio of greater than 50%; and
  • substantial pre-payment penalties, or pre-payment penalties that extended beyond the teaser period, or a Loan-to-Value ratio over 97%.

Borrowers who will receive benefits under the settlement will receive a notice from the Office of the Attorney General in the coming months.  At present, borrowers do not need to do anything in order to obtain the benefits of the settlement.

AG Coakley’s office has been a national leader in holding banks and investment giants accountable for their roles in the economic crisis.  AG Coakley has obtained recoveries from Morgan Stanley , Goldman Sachs , Countrywide , Fremont Investment and Loan , and others on behalf of Massachusetts homeowners.  As a result of these actions, her office has recovered more than $600 million in relief for investors and borrowers, helped keep more than 24,700 people in their homes, and returned nearly $60 million in taxpayer funds back to the Commonwealth.

More information about AG Coakley’s work during the lending crisis can be found here pdf format of AG-Coakley-Predatory-Lending-Initiative.pdf
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Homeowners with questions about today’s settlement should contact Attorney General’s Insurance and Financial Services Hotline at 1-888-830-6277.

The RBS/Greenwich matter is being handled by Attorney General Martha Coakley’s Insurance and Financial Services Division, including Assistant Attorneys General Madonna Cournoyer, Peter Leight, Amita Singh and Division Chief Glenn Kaplan; Legal Analysts Hanne Walker and Jenny Wojewoda; Economist Bryan Lincoln; and Mathematicians Burt Feinberg and Margrethe Flanders. 

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