Ally Financial reached a $52 million settlement with the U.S. Attorney’s Office after it was alleged that one of its subsidiaries, Residential Capital, consciously marketed mortgage bonds despite the fact that the underlying mortgages were toxic, reports HousingWire staffer Ben Lane.
The settlement stems from 10 subprime residential mortgage-backed securities that were issued in the RASC-EMX series between 2006 and 2007. Ally Financial’s registered broker-dealer, Ally Securities served as the lead underwriter.
According to the U.S. Attorney’s Office, Ally Securities devoted a “specialized marketing effort” to create the RASC-EMX brand, securing investors for the RMBS offerings, and directed third-party due diligence on samples of the underlying mortgage loans pools to test whether the loans complied with disclosures made to investors in the public offering documents.
But as lead underwriter, Ally Securities apparently recognized in 2006 and 2007 that there was a “consistent trend of deterioration” in the quality of the mortgage loans pools in the RASC-EMX securities.
“These securities were marketed to investors with the knowledge that a significant percentage of the pooled subprime mortgages were toxic, meaning that they were underwritten to risky guidelines likely to result in the loans falling delinquent,” said United States Attorney Eileen Decker.