Royal Bank of Scotland Settles FHFA’s MBS Securities Probe For $5.5B

This week, Royal Bank of Scotland Group PLC (RBS) has agreed to pay the Federal Housing Finance Agency $5.5B to resolve the latter’s investigation into the UK government-controlled bank’s sale of toxic mortgage-backed securities to mortgage giants Freddie Mac and Fannie Mae leading up to the 2008 financial crisis. RBS has come under fire for the way it packaged and sold subprime mortgages. The violations allegedly involved private-label residential mortgage-backed securities (PLS) trusts that were purchased between 2005 and 2007.

RBS will pay Freddie Mac about $4.5B and approximately $975M to Fannie Mae to resolve this RMBS fraud case. However, the bank is eligible for a $754M reimbursement according to certain indemnification agreements.

RBS had previously reached, for $1.1B, separate settlements over similar MBS fraud claims that the US National Credit Union Administration had brought in Kansas and California. It remains under investigation by the US Department of Justice and several US agencies who are conducting their own mortgage-backed securities fraud probes.

Meantime, the bank, along with Nomura Holdings Inc. (NMR) continues to appeal a ruling requiring that they pay FHFA $839M for false statements they are accused of making while selling residential mortgage-backed securities to Freddie and Fannie. Nomura sponsored $2B of the securities sold. RBS was underwriter on a number of the deals. A district court judge awarded the US government agency $806M after finding that offering documents failed to properly describe the mortgage loans. Another $33M was added for expenses and legal fees pending the outcome of the appeal.

It was just last month that RBS arrived at an out-of court $257M settlement with a group representing the bank’s investors over a $15B cash call in 2008 that cost shareholders about 80% of their investments.

Since 2011, FHFA has filed at least 18 lawsuits against over approximately $200B in MBSs that were sold to Freddie and Fannie. Already, it has obtained more than $30B in mortgage-backed securities fraud settlements with some of the biggest banks in the world, including Bank of America Corp. (BAC), Deutsche Bank AG (DB), Barclays (BARC), HSBC (HSBC) and JPMorgan Chase & Co. (JPM).

At The SSEK Partners Group, one of our mortgage-backed securities lawyers can help you explore your legal options.

Royal Bank of Scotland’s settlement agreement with FHFA (PDF)

RBS to Pay $1.1 Billion to Close First Major U.S. Mortgage Probe, Bloomberg, September 27, 2016