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RBS to Pay $42 Million to Settle Nevada ARM Probe

marketwatch.comOct 24, 2012

By Saabira Chaudhuri

RBS Financial Products has agreed to pay $42 million to resolve an investigation into its role in purchasing and securitizing subprime and payment option adjustable rate mortgages in Nevada, according to Nevada Attorney General Catherine Cortez Masto.

RBS Financial neither admitted nor denied wrongdoing.

The assurance of discontinuance, filed in Eighth Judicial District Court, also requires RBS Financial to commit to certain changes in the way it securitizes Nevada mortgages. The firm only will finance, purchase, or securitize Nevada subprime mortgage loans if it has engaged in a "reasonable review" of such loans and determined that such loans comply with the Nevada Deceptive Trade Practices Act.

The $42 million will be used to pay affected borrowers, as well as for mortgage fraud enforcement, foreclosure prevention, and attorney's fees and costs.

"The payment from RBS will alleviate some of the injury to the Silver State and its residents," Ms. Masto said. "The changes to its securitization process should help make sure that we do not go down this road again."

More than 2,000 Nevada homeowners will directly benefit from the settlement, according to the Attorney General's office.

The nearly two year investigation centered upon potential misrepresentations by lenders, including Countrywide and Option One, to Nevada consumers who took out subprime loans and payment option adjustable rate mortgages that were bought and securitized by RBS Financial between 2004 and 2007. These include whether lenders deceived consumers about the actual interest rate and payments on their loans, the appraised value of their property, and the potential payment shock when the initial teaser rate on their mortgages expired.

The investigation also examined whether lenders originated loans with multiple risk features that allowed them to lower borrowers' payments, but not their debt.

The Attorney General's Office noted it was concerned that many borrowers who took these loans didn't understand the likelihood that they wouldn't be able to repay their loans or that they would have to refinance the loan before the payment increased.

Ms. Masto examined the extent to which RBS Financial was aware of the lenders' allegedly deceptive practices through its due diligence process when it bought the loans and whether the firm "substantially assisted" these lenders by financing and purchasing their loans. The Nevada Attorney General noted she particularly examined the firm's role in making the market for payment option ARMs, which have had a "particularly devastating effect" on Nevada homeowners and communities.

The Attorney General's office said borrowers don't need to do anything in order to obtain the benefits of the settlement as the distribution plan for eligible recipients is still being finalized.

It said borrowers eligible for relief should periodically visit http://ag.nv.gov/RBS, which will be updated with information when available. Only borrowers whose loans were financed or acquired by RBS are covered by this settlement.

Back to October 2012 Archive

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