The Swiss multi-national financial firm, Credit Suisse has agreed to pay $5.28 billion to settle with the U.S. government over the packaging, securitization, issuance, marketing and sale of toxic residential mortgage-backed securities (RMBS) between 2005 and 2007, according to the United States Department of Justice (USDOJ).
As part of the settlement, Credit Suisse will pay $2.48 billion as a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). The remaining $2.8 billion will be allocated to provide mortgage relief to underwater homeowners, distressed borrowers and affected communities, in the form of loan modifications, mortgage forgiveness and financing for affordable housing.
The lawsuit was brought against Credit Suisse for misleading investors, including federally-insured financial institutions who suffered billions of dollars in losses from investing in mortgage backed securities that were misrepresented and improperly underwritten.
U.S. Attorney General Loretta E. Lynch had issued this statement;
“Today’s settlement underscores that the Department of Justice will hold accountable the institutions responsible for the financial crisis of 2008. Credit Suisse made false and irresponsible representations about residential mortgage-backed securities, which resulted in the loss of billions of dollars of wealth and took a painful toll on the lives of ordinary Americans. Under the terms of this settlement, Credit Suisse will pay $2.48 billion as a fine for its conduct. And Credit Suisse has pledged $2.8 billion in relief to struggling homeowners, borrowers, and communities affected by the bank’s lending practices. These sums reflect the huge breach of public trust committed by financial institutions like Credit Suisse.”
Credit Suisse agreed to a statement of facts that detail how the financial firm lied to prospective investors about the characteristics of the mortgage loans it securitized. For example, Credit Suisse told investors in offering documents that the mortgage loans it securitized into RMBS “were originated generally in accordance with applicable underwriting guidelines,” except where “sufficient compensating factors were demonstrated by a prospective borrower.” It also told investors that the loans “had been originated in compliance with all federal, state, and local laws and regulations, including all predatory and abusive lending laws.”
Credit Suisse has now acknowledged that “Credit Suisse repeatedly received information indicating that many of the loans reviewed did not conform to the representations that would be made by Credit Suisse to investors about the loans to be securitized.” It has acknowledged that in many cases, it purchased and securitized loans into its RMBS that “did not comply with applicable underwriting guidelines and lacked sufficient factors” and/or “w[ere] not originated in compliance with applicable laws and regulations.” Credit Suisse employees even referred to some loans they securitized as “bad loans,” “‘complete crap’ and ‘[u]tter complete garbage.’”