On October 17, Nevada Attorney General (AG) Catherine Cortez Masto announced that she had finalized an agreement with a financial institution that requires the financial institution to pay $11.5 million, without admitting fault, to resolve the AG’s investigation into the financial institution’s role in purchasing and securitization of subprime, Alt-A, and payment option adjustable rate mortgages. The investigation focused on whether certain lenders had deceived borrowers about the actual interest rate and payments on their loans, and had originated loans with multiple risk features that led to approval of loans without proper consideration of the borrowers’ ability to repay. The investigation also examined the extent to which the financial institution was aware of the lenders’ allegedly deceptive practices when it bought the loans, and whether the financial institution facilitated these lending practices by financing and purchasing such loans. In addition to the monetary penalty, the agreement stipulates that the financial institution will: (i) only finance, purchase, or securitize subprime mortgage loans in Nevada if it has engaged in a review of such loans and determined that the loans comply with the Nevada Deceptive Trade Practices Act and (ii) not securitize loans where upon review it has reason to believe that the lender has not adequately disclosed to the borrowers the existence of an initial teaser rate, the potential for negative amortization on a loan, the maximum adjusted interest rate or payments, and the potential for payment shock if payments increase after a loan reset or recast.
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