Anne Bucher  |  February 20, 2014

Category: Consumer News

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RBS mortgage-backed securities settlementRoyal Bank of Scotland Group PLC will pay $275 million to settle a class action lawsuit that accused the bank of misleading investors in mortgage-backed securities offerings.

The RBS mortgage-backed securities settlement would resolve a class action lawsuit that was filed in 2008 against RBS and other defendants by a group of pension funds over the Harborview series mortgage-backed securities that were packaged and sold by RBS.

The plaintiffs in the class action lawsuit include the New Jersey Carpenters Vacation Fund, Iowa Public Employees’ Retirement System, Midwest Operating Engineers Pension Trust Fund and the Boilermaker Blacksmith Pension Trust. They claim the Harborview series mortgage-backed securities were sold despite the fact that they did not meet underwriting guidelines. The plaintiffs allege that the certificates had been downgraded to “junk bond” status by the end of 2008.

On February 14, the parties submitted a letter to U.S. District Judge Harold Baer Jr. indicating their intent to file a motion for preliminary approval of the class action settlement once the terms were documented.

“This settlement will give closure and monetary relief to investors who suffered losses in connection with these Harborview mortgage-backed securities,” plaintiffs’ attorney Steven Toll said in a statement.

Mortgage-backed securities are investments secured by the value of a group of mortgages that are bundled by an investment bank or agency such as Fannie Mae or Freddie Mac. The use of mortgage-backed securities revolutionized the housing market because it allowed more people to buy homes, essentially by giving them the ability to enter into mortgages they couldn’t afford.

These bundles of mortgages were a major part of the U.S. housing bubble that burst in 2008, leading the country into the biggest recession since the 1930s. During the financial crisis, banks lost billions of dollars as housing prices plummeted and demand for mortgage-backed securities virtually disappeared.

The RBS mortgage-backed securities settlement, if approved, would be the third-largest class action settlement stemming from the 2008 financial crisis. Last year, a $500 million class action settlement was reached between Bank of America Corp. and investors who alleged they were deceived by Countrywide, the mortgage unit of the bank. The Bank of America mortgage-backed securities settlement was approved in December. A $315 million class action settlement involving securities issued by the Merrill Lynch unit of Bank of America was approved in 2012.

The plaintiffs are represented by Joel P. Laitman, Steven J. Toll, Christopher Lometti and Michael Eisenkraft of Cohen Milstein Sellers & Toll PLLC.

The RBS Mortgage-Backed Securities Class Action Lawsuit is New Jersey Carpenters Vacation Fund, et al. v. Royal Bank of Scotland Group PLC, et al., Case No. 2:08-cv-05093, in the U.S. District Court for the Southern District of New York (Manhattan).

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