Credit: Shutterstock photoThe Royal Bank of Scotland Group plc ( RBS ) has reached a settlement with the Federal Housing Finance Agency (FHFA) - the conservator of government-sponsored enterprises (GSEs) Freddie Mac ( FMCC ) and Fannie Mae ( FNMA ), per a Reuters report. According to the settlement, the Edinburgh, UK-based bank will pay $99.5 million to FHFA to compensate its faulty mortgage practices between 2005 and 2007. It will exonerate RBS from the claims that it sold flawed mortgage-backed securities (MBS) to Freddie Mac.
As per FHFA, the agreement has its roots in a 2011 litigation that was filed against the Detroit, MI-based automotive financial services company - Ally Financial Inc. ( ALLY ). That suit also indicted other lenders, including RBS, which underwrote MBSs sold by Ally to the GSEs. Notably, Ally had already settled the case by paying $475 million.
Following the housing market collapse, FHFA was set up as an independent regulator to oversee the housing finance market. It aims to protect investors' interest and provide a secured investment environment for them. The FHFA had accused 18 banks of selling faulty mortgage securities to Fannie Mae and Freddie Mac in 2011. As of now, FHFA has been successful in reaching 15 settlements, totaling about $16.1 billion, with the lenders.
Further, though the latest settlement resolves a major legal hassle for RBS, the company is not yet out of the woods. It still faces a case filed by the FHFA in the Connecticut federal court.
Currently, RBS sports a Zacks Rank #1 (Strong Buy).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
