By Simon Miller
Royal Bank of Scotland (RBS) is to pay $52m (£33.5m) in settlement to the State of Massachusetts over claims related to subprime mortgages.
It’s RBS Financial Products unit has agreed with to settle claims that it financed, purchased and bundled unfair residential loans that it knew would not be paid back, however, it denies any wrongdoing.
In a statement, Massachusetts Attorney General Martha Coakley said that holding banks accountable was the only way the US was going to return to a healthy economy.
More than $40.2m will be used to provide relied for more than 700 borrowers and cash payments to those whose homes were repossessed. A further $8.9m will be paid to the state.
The RBS subsidiary, which formerly traded as Greenwich Capital Financial Products was accused of violating state consumer law because they had an introductory teaser period of less than three years, an introductory teaser rate of at least 2% below the fully indexed rate and a debt-to-income ratio of more than 50%.
Coakley said: “The securitisation of subprime loans by investment banks is a major cause of the economic crisis. Investment banks profited handsomely from those securitisations at the expense of homeowners.”
RBS becomes the third investment bank to settle over the securitisation practices of sub-prime mortgages following Coakley’s $60m agreement with Goldman Sachs in 2009 and Morgan Stanley’s $102m settlement in 2010.
Meanwhile, Citigroup’s $285m settlement with the US Securities and Exchange Commission (SEC) over its mortgage-backed securities has been rejected by a federal judge.
Manhattan district judge Jed Rakoff rejected the settlement, saying he did not have enough facts to approve the deal. He also criticised the SEC for letting financial institutions settle without admitting or denying liability.
Rakoff wrote: “In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. The proposed settlement is ‘neither fair, nor reasonable, nor adequate, nor in the public interest’.”
The suit has been consolidated with a case involving former Citigroup employee Brian Stoker and the trial is set for 16 July 2012.