On February 11, New York AG Schneiderman announced a $3.2 billion settlement that includes $550 million for New York with a New York-based financial institution over its alleged deceptive practices involving the sales and issuance of Residential Mortgage-Backed Securities (RMBS) leading up to the financial crisis. According to the settlement agreement, the financial institution (i) increased the acceptable risk levels for loans held in its securitized pools; (ii) securitized certain loans that did not comply with underwriting guidelines and did not have adequate compensating factors; (iii) purchased and securitized loans which its credit and compliance team advised it not to purchase; and (iv) allowed for the purchase of loans it knew to be risky without a loan file review for credit and compliance. The settlement requires the financial institution to (i) provide at least $400 million in consumer relief directly to struggling families and communities across the state; and (ii) pay $150 million “in consideration for the settlement of potential legal claims by the NYAG as compensation for harms to the State of New York allegedly resulting from [its] creation, packaging, marketing, underwriting, sale, structuring, arrangement, and issuance of RMBS in 2006 and 2007.”
New York AG Schneiderman’s settlement is in conjunction with other settlements with members, including the DOJ, of the RMBS Working Group, which was formed in 2012 as a joint federal and state enforcement effort for investigating the RMBS market for fraud and abuse. Finally, in a similar effort last week, the FDIC, as the receiver of affected banks, announced an RMBS-related settlement with the same New York-based financial institution.