Barclays to Pay $36.1 Million for Securitization Role in Subprime Mortgage Meltdown
AG Announces Fourth Securitization-Related Action Brought by Massachusetts against Wall Street Banks; More Than 450 Homeowners Will Directly Benefit From Settlement
BOSTON – Barclays Bank PLC (Barclays) will pay $36.1 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.
This is the fourth case announced by AG Coakley against Wall Street investment firms following investigations into their securitization practices. Through today’s action, as well as actions brought against investment giants Morgan Stanley, Goldman Sachs, and the Royal Bank of Scotland (RBS), the AG’s Office has recovered more than $250 million in connection with securitization claims, assisting thousands of homeowners across the state.
“The troubling practices of these Wall Street securitization firms greatly contributed to the economic crisis that harmed Massachusetts residents,” AG Coakley said. “Today’s settlement with Barclays will help keep hundreds of people in their homes and recover more than $25 million in significant relief for borrowers who are still struggling with unsustainable subprime loans.”
The assurance of discontinuance was filed earlier today in Suffolk Superior Court. Under the terms of the settlement, Barclays will make the following payments:
- More than $25 million to be used for principal reduction and related relief for more than 450 Massachusetts subprime borrowers.
- Eligible borrowers had loans securitized by Barclays in 2006 and 2007 that carried a combination of high risk features, including introductory “teaser” interest rates, high debt-to-income ratios and high loan-to-value ratios.
- Large concentrations of eligible consumers are in areas such as Boston, Brockton, Lawrence, Lowell, Lynn, New Bedford, Springfield, and Worcester.
- Approximately $2 million to compensate the cities and towns most acutely affected by foreclosures of Barclays securitized loans.
- Approximately $1 million to non-profit organizations that are assisting with foreclosure relief efforts in Massachusetts.
- More than $7 million to the Commonwealth
Today’s settlement with Barclays is part of an ongoing, multi-year, industry-wide investigation by AG Coakley. As in similar enforcement actions, AG Coakley used her civil subpoena powers to unravel the complex securitization process that facilitated the proliferation of subprime loans across Massachusetts and the nation. Barclays securitized loans from subprime originators such as Fremont, New Century, Option One, 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 investigate and hold Wall Street securitization firms accountable for their role in the subprime mortgage crisis. Today’s settlement with Barclays is the most recent settlement resulting from AG Coakley’s on-going investigation into the role of Wall Street investment banks in funding, purchasing and securitizing unfair residential mortgage loans. It follows the resolution of these similar matters, including:
- In May 2009, Goldman Sachs paid $60 million in relief for the Commonwealth and affected homeowners as part of a settlement with the AG’s Office.
- In June 2010, Morgan Stanley paid $102 million in relief for the Commonwealth and affected homeowners as part of a settlement with the AG’s Office.
- In November 2011, RBS paid $52 million in relief for the Commonwealth and affected homeowners pursuant to a settlement with the AG’s Office.
More than 450 Massachusetts borrowers will receive specific benefits from the Barclays settlement, including reductions in the principal amount due on their loans, and foreclosure relief payments. Eligible borrowers have loans that were securitized by Barclays 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%.
Eligible borrowers will receive a notice from the Office of the Attorney General in the coming months. Homeowners with questions about today’s settlement should contact Attorney General’s Insurance and Financial Services Hotline at 1-888-830-6277.
AG Coakley’s office has been a national leader in holding banks and investment giants accountable for their role in the economic crisis. In addition to recoveries involving the securitization of loans, AG Coakley has also obtained settlements with Countrywide, Fremont Investment and Loan, Option One and others on behalf of Massachusetts homeowners. In 2012, AG Coakley’s office joined a $25 billion nationwide settlement with the five major lenders over unlawful foreclosure practices. AG Coakley’s first-in-the-nation HomeCorps program, established with funds from that settlement, continues to provide assistance to borrowers across the state with dedicated loan modification specialists and through a series of grants. As a result of all these actions, her office has recovered more than $700 million in relief for investors and borrowers, helped keep more than 30,000 people in their homes, and returned more than $70 million in taxpayer funds back to the Commonwealth.
More information about AG Coakley’s work during the lending crisis can be found here.
The Barclays case was handled by the staff of Attorney General Martha Coakley’s Insurance and Financial Services Division, including Assistant Attorneys General Glenn Kaplan, Peter Leight, Aaron Lamb, Matthew Gendron, and Lydia French; Mathematician Dr. Burt Feinberg and Analyst Nicole Karatzas; Investigations Supervisor Arwen Thoman; and paralegals Meaghan Dever and Erica Harmon.