RBS finally settles multibillion-dollar lawsuit with FHFA over mortgage-backed securities

Settlement stalled after the election

The Royal Bank of Scotland Group finally shut the door on its settlement with the Federal Housing Finance Agency, as conservator of Fannie Mae and Freddie Mac, which was delayed after the election due to changes in the government.

The FHFA announced a $5.5 billion settlement to resolves all claims in the lawsuit FHFA v. The Royal Bank of Scotland Group plc et al., in the United States District Court for the District of Connecticut.

Under its role as conservator, FHFA filed the lawsuit, alleging violations of federal and state securities laws in connection with private-label residential mortgage-backed securities trusts purchased by the government-sponsored enterprises between 2005 and 2007. 

Of the $5.5 billion settlement, Royal Bank of Scotland will pay approximately $4.525 billion to Freddie Mac and approximately $975 million to Fannie Mae.

In addition, certain claims against Royal Bank of Scotland related to the securities involved will be released. 

“Today’s announcement is an important step forward in resolving one of the most significant legacy matters facing RBS and is further evidence of the determination of the bank’s leadership to put our remaining issues behind us,” said Ross McEwan, RBS CEO.

“This settlement is a stark reminder of what happened to this bank before the financial crisis, and the heavy price paid for its pursuit of global ambitions,” he added.

This latest settlement wraps up one of the last settlements remaining for the FHFA that date back to the financial crisis. The FHFA filed a total of 18 lawsuits in 2011 as conservator of Fannie Mae and Freddie Mac alleging violations of various statutory provisions by participants in the mortgage finance sector. 

Shortly before leaving office, the Obama administration announced multi-billion dollar settlements with two foreign banks, Deutsche Bank and Credit Suisse, for each bank’s crisis-era mortgage securitization practices.

Germany’s Deutsche Bank agreed to settle for $7.2 billion, while Switzerland’s Credit Suisse agreed to a $5.28 billion settlement with the feds.

This settlement with RBS was the 17th case of those filed by FHFA. FHFA received a favorable verdict after trial in the 18th case and that verdict is currently the subject of an appeal.

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