In a reminder that litigation from the credit crisis is still kicking around and that there are still some significant credit crisis cases that are yet to be resolved, Royal Bank of Scotland has agreed to settle the Harborview Mortgage-Backed Securities litigation for a payment of $275 million dollars. The settlement is subject to documentation and court approval. A copy of plaintiffs’ counsel’s February 19, 2014 press release about the settlement can be found here. The parties’ February 14, 2014 letter to the court regarding the settlement can be found here.
As discussed in greater detail here, this securities class action lawsuit had been brought in 2008 by institutional investors that purchased certain mortgage backed securities in one of 14 public offerings during 2006 and 2007 of the “Harborview” series of mortgage backed securities, of which a unit of RBS was the primary issuer and underwriter.
As discussed here (scroll down), in March 2010, Judge Harold Baer, Jr. granted in part and denied in part the defendants’ motion to dismiss. Judge Baer denied defendants motions to dismiss related to “misstatements and nondisclosure of mortgage originators’ ‘disregard’ for loan underwriting standards.”
The loan originators in question included certain mortgage lenders whose names “are now synonymous with sub-prime lending and the housing market collapse,” including Countrywide, American Home Mortgage Corporation, IndyMac, BankUnited, and Downey Savings. Judge Baer concluded that “plaintiffs have pled sufficient factual allegations to plausibly infer that the underwriting guidelines were disregarded by mortgage originators, and in conflict with the disclosures made in the Offering Documents.” Judge Baer found the plaintiffs had alleged that the originators “systematically ignored their stated underwriting practices” and that “plaintiffs have also sufficiently, albeit just barely, connected these allegations to the offerings in question.”
In subsequent litigation, the parties disputed which investors had standing to purchase these claims, and Judge Baer entered several order addressing the definition of the class.
According to the plaintiffs’ press release, the $275 million settlement, if approved, would be the third-largest MBS securities class action lawsuit settlement. For those curious about the two larger MBS settlements, as discussed here, the Countrywide MBS securities lawsuit settled in April 2013 for $500 million, and the Merrill Lynch MBS securities lawsuit settled in 2011 for $315 million (refer here).
Neither the press release nor the parties’ letter to the court states how the settlement is to be funded or if any portion of the settlement will be funded by insurance. According to Nate Raymond’s February 19, 2014 Reuters article about the settlement (here), last month RBS announced that it had set aside 3.1 billion pounds(about US $5.2 billion) to cover legal claims against it, including 1.9 billion pounds to resolve claims primarily related to mortgage-backed securities.