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A.G. Schneiderman Announces $500 Million Settlement With Royal Bank Of Scotland Over Misconduct Leading Up To Financial Crisis

Settlement Secures $100 Million in Cash for New York State; $400 Million in Consumer Relief for New Yorkers Impacted By the Housing Crash

Today’s Settlement Brings Total Cash and Consumer Relief Secured by AG Schneiderman in Aftermath of Financial Crisis Up to $3.7 Billion

Attorney General Eric T. Schneiderman recently announced a $500 million settlement with Royal Bank of Scotland over the bank’s deceptive practices and misrepresentations to investors in connection with the packaging, marketing, sale, and issuance of residential mortgage-backed securities (RMBS) leading up to the financial crisis. The settlement includes $100 million in cash to New York State and $400 million worth of consumer relief for New York homeowners and communities.

This marks the sixth large financial institution to settle with Attorney General Schneiderman’s office since he was appointed co-chair of the RMBS Working Group by President Obama in 2012, and brings the total cash and consumer relief secured by Attorney General Schneiderman in the aftermath of the financial crisis to $3.7 billion—more than any other state. When combined with the National Mortgage Settlement, the total number is $5.83 billion.

“While the financial crisis may be behind us, New Yorkers are still feeling the effects of the housing crash,” said Attorney General Schneiderman. “Home values plummeted. Vacant homes consumed neighborhoods. And for many New Yorkers, affordable housing fell out of reach. Today’s settlement is another important step in our comprehensive effort to help New Yorkers rebuild their lives and communities. I am proud of the extraordinary housing programs these settlements have funded across New York, from Brookhaven to Buffalo – and today’s settlement will fund even more community revitalization initiatives for years to come.”

The settlement requires RBS to provide significant community-level relief to New Yorkers, including funds to spur the construction of more affordable housing. Additional resources will be dedicated to helping communities transform their code enforcement systems, invest in land banks, and purchase distressed properties to keep them out of the hands of predatory investors. Compliance with the settlement will be overseen by an independent monitor who will be responsible for ensuring that targets under the settlement are met and that quarterly reports are made available to the public.

As part of the settlement, RBS admits that it sold investors RMBS backed by mortgage loans that, contrary to its representations, did not materially comply with underwriting guidelines. Further, many of the mortgage loans did not comply with applicable laws and regulations, among other defects. As a result, the loan pools backing the securitizations suffered billions of dollars of collateral losses, and investors experienced shortfalls in principal and interest payments, as well as declines in the market value of their certificates. The conduct detailed in the Statement of Facts, which RBS admits, harmed countless New York homeowners and investors by contributing to the crash in home values during the financial crisis.

During the relevant time period, RBS’s diligence vendors warned the bank that many of the loans that it purchased for securitization did not conform to underwriting guidelines, as RBS represented to investors; yet RBS packaged and sold them anyway. Moreover, a number of mortgage loans backing RBS’s RMBS had loan-to-value ratios over 100 percent, i.e., they were “underwater.” Overall, because RBS agreed to limit the scope of the diligence conducted on mortgage loans, RBS securitized large numbers of loans for which no diligence was performed to assess whether the loans conformed to underwriting guidelines or had material defects. Further, RBS’s review of securitized mortgage loans, which defaulted shortly after issuance, showed serious problems in the origination of the loans. Nevertheless, after identifying these problems, RBS continued to purchase and securitize risky loans from the same originators, which it packaged and sold to unwitting investors.

Including this settlement, Attorney General Schneiderman has now recovered more than $3.7 billion in cash and consumer relief from RMBS settlements, more than any other state. Prior settlements were negotiated through the Residential Mortgage-Backed Securities Working Group. That collaboration – co-chaired by Attorney General Schneiderman – brought together the Department of Justice (DOJ), other federal entities, and several state law enforcement agencies to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities. The Department of Justice’s investigation of RBS remains pending.

“Attorney General Schneiderman’s Land Bank Community Revitalization Initiative has helped revitalize neighborhoods and strengthen communities throughout New York State,” said Adam Zaranko, President of the New York Land Bank Association and Executive Director of the Albany County Land Bank. “Thanks to the Attorney General’s leadership, New York’s land banks are combating blight and improving the quality of life for New Yorkers from Buffalo to Long Island.”

“We are so thrilled that AG Schneiderman continues to push the financial services industry to do right by New Yorkers,” said Christie Peale CEO of the Center for NYC Neighborhoods. “The resources the AG has delivered to NYS over the past 6 years have been critical to helping families keep their homes while also making our communities vibrant for the next generations of New Yorkers.”

“The Greater Syracuse Land Bank has received nearly $7 million to date from the NY Attorney General's Community Revitalization Initiative program, enabling us to demolish 95 blighted and hazardous abandoned buildings and to renovate 68 homes for home ownership,” said Katelyn E. Wright, Executive Director Greater Syracuse Land Bank. “An additional five renovations and three new construction homes are pending completion this year. These projects give buyers a chance to own their own home, grow equity, and secure financial stability for their families and they enhance the value of surrounding homes. This financial support from the NY Attorney General's Office equips us to address the scale of property abandonment in our community and is a crucial complement to the City and County's investment in the Land Bank.”

This matter was led by Senior Enforcement Counsel Hannah K. Flamenbaum, Assistant Attorneys General Jesse A. Devine and Melissa G. Gable, all of the Investor Protection Bureau, and Senior Enforcement Counsel Steven J. Glassman, under the supervision of Executive Deputy Attorney General of Economic Justice Manisha M. Sheth.

A copy of today’s Settlement Agreement and accompanying Statement of Facts can be viewed here.