A Study of RMBS Litigation Cases of Six Major U.S. Banks

Abstract

Prior to the financial crisis of 2008–2009, banks engaged in activities related to mortgages and mortgage-backed securities that caused financial losses to investors. This resulted in a wave of residential mortgage-backed securities (RMBS) litigation. Investors and U.S. government entities filed hundreds of lawsuits in federal court in the years during and after the credit crisis. In this research, the authors consider 43 settlements of RMBS litigation pertaining to major U.S. banks. First, they provide a chronology of major events in the history of RMBS litigation. Second, using a unique dataset, they quantify the impact and involvement of such litigation on major U.S. banks, U.S. government agencies, and other entities. There are two important findings: U.S. banks were not equally impacted, and RMBS settlements were not equally distributed among the various plaintiffs. Third, the authors provide a breakdown of the litigation by year of settlement. They show that litigation settlement activity increased in 2013 and 2014 but declined during the period 2014–2016.

TOPICS: MBS and residential mortgage loans, financial crises and financial market history