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Deutsche Bank, RBS, Wells Fargo settle for $165 million over NovaStar mortgages

Union pension funds to receive payment in class action suit

Deutsche Bank, Royal Bank of Scotland, and Wells Fargo reached a $165 million settlement in class action lawsuit brought by pension funds over faulty crisis-era mortgages originated NovaStar Mortgage, the plaintiffs’ attorneys announced on Wednesday.

If approved by judge, the settlement would bring a nine-year legal battle to a close.

According to details provided by the plaintiffs, the New Jersey Carpenters Health Fund, and the Iowa Public Employees’ Retirement System were among the buyers of mortgage-backed securities that included NovaStar mortgages in 2006.

The groups’ lawsuit claimed that NovaStar “specialized in authorizing risky residential mortgage loans” that other banks underwrote and packaged into mortgage bonds.

The lawsuit charged NovaStar, RBS, Wells Fargo and Deutsche Bank with “misleading investors into believing that the securities they bought were safer than they proved to be.”

The suit also claimed that NovaStar “hid how it systematically disregarded its own underwriting guidelines to increase the number of mortgages it could originate and incentivized its employees to make noncompliant loans to extremely risky borrowers.”

When the mortgage bonds were downgraded to junk status after the underlying mortgage began failing, the pension funds sustained a “painful financial hit.”

The groups then sued, with the case taking nine years to reach a conclusion.

“After years of hard-fought litigation – which included a dismissal, an appeal, and even the bankruptcy of some of the defendants – thousands of workers will finally get some financial relief,” said Steven Toll, managing partner at Cohen Milstein Sellers & Toll, which represented the plaintiffs in this class action. “We will continue to seek justice for those who suffered because of irresponsible lending and investments that burst the housing bubble and crashed our economy."

The bankruptcy Toll mentioned is in reference to NovaStar, which declared bankruptcy in 2016.

Per this report from Reuters, NovaStar filed for Chapter 11 protection in July and will not be “contributing to the payout.”

Information supplied by the plaintiffs did not provide detailed information about how much each bank is contributing to the $165 million “all-cash” settlement.

When contacted by HousingWire, Wells Fargo, RBS, and Deutsche Bank all issued a “no comment” on the settlement.

“The reckless actions taken by big Wall Street banks, NovaStar and other companies like them have robbed thousands of hardworking individuals of their retirement benefits and have put their families' futures and well-being at risk,” said Pete Tonia, the benefit funds director of Northeast Carpenter Funds.

“It has taken a great deal of work over many years to get here, and this agreement is a meaningful step toward restitution for the victims of financial institutions,” Tonia added. “We are pleased that the participants of the Northeast Carpenters Funds will receive some retribution for their losses during the economic downturn from this settlement.”

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