Some homeowners in Massachusetts will be gaining a measure of mortgage debt relief resulting from a $52 million settlement of a lawsuit against the Royal Bank of Scotland.
Massachusetts Attorney General Martha Coakley announced Monday that the Royal Bank of Scotland agreed to settle the stateâ€™s lawsuit against its subsidiary, formerly known as Greenwich Capital Financial Products Inc., that alleged the subsidiary traded more than 700 â€śpresumptively unfairâ€ť subprime mortgages doled out to residents during the housing boom.
According to the lawsuit, the subsidiary traded subprime mortgages that were securitized by the Royal Bank of Scotland that contained features such as introductory â€śteaser periodsâ€ť of three years or less, introductory â€śteaser ratesâ€ť at least 2 percent lower than the fully-indexed rate, a debt-to-income ratio of greater than 50 percent, and substantial prepayment penalties or loan-to-value ratios over 97 percent. The features are illegal under state law.
Under the terms of the $52 million settlement, the Royal Bank of Scotland will pay more than $40.2 million for principal reduction and related mortgage debt relief for more than 700 Massachusetts subprime borrowers, pay fees of more than $8.9 million to the Commonwealth, and pay more than $2.6 million as compensation to sub-entities, including municipalities most affected by the foreclosure of RBS securitized loans.
â€śThe securitization of subprime loans by investment banks is a major cause of the economic crisis,â€ť Coakley said in a statement. â€śInvestment 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 Massachusettsâ€ť (â€śRoyal Bank of Scotland to Pay $52 Million,â€ť Office of the Attorney General of Massachusetts press release, Nov. 28, 2011).
The settlement with the Royal Bank of Scotland marks the third such settlement with financial institutions resulting from a multi-year, ongoing, industry-wide investigation by Coakleyâ€™s office that has recovered more than $200 million in connection with subprime mortgage securitization claims. In May 2009, Coakleyâ€™s office settled with Goldman Sachs for $60 million over similar claims. In June 2010, Coakleyâ€™s office settled with Morgan Stanley for $102 million.
Coakley said that borrowers receiving benefits under the settlement with the Royal Bank of Scotland will receive a notice from the Office of the Attorney General in the coming months. Borrowers with questions about the settlement with can call the Attorney Generalâ€™s Insurance and Financial Services Hotline at (888) 830-6277.
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