Credit Suisse Residential Mortgage Backed Securities Settlement Agreement: What You Need to Know
Credit Suisse has agreed to pay $5.3 billion to settle claims related to its sale of residential mortgage-backed securities (RMBS) prior to the 2008 financial crisis. The settlement, which was announced in November 2016, is one of the largest penalties ever paid by a bank for misrepresenting the quality of mortgage securities.
The settlement agreement requires Credit Suisse to pay $2.8 billion in consumer relief to homeowners who are at risk of foreclosure or who have already lost their homes due to foreclosure. The bank will also pay $2.4 billion in civil penalties to the Department of Justice and several state attorneys general.
The settlement stems from an investigation into Credit Suisse’s sale of RMBS between 2005 and 2007. According to the DOJ, the bank misled investors about the quality of the loans in the securities, which were often backed by subprime mortgages that had a high risk of default. The investigation found that Credit Suisse knowingly sold securities backed by loans it knew were likely to fail.
The settlement is part of a broader effort by the DOJ and other agencies to hold banks accountable for their role in the financial crisis. Since the crisis, the government has reached settlements with several banks, including JP Morgan, Bank of America, and Goldman Sachs, for their sale of mortgage-backed securities.
The Credit Suisse settlement also underscores the importance of due diligence when investing in securities. Investors should carefully review prospectuses and other disclosures to ensure they understand the underlying assets and risks associated with a particular security. It’s also important to work with a qualified financial advisor who can help identify potential risks and make appropriate investment decisions.
In conclusion, the Credit Suisse settlement is another reminder of the risks associated with complex financial instruments. Investors should take steps to ensure they fully understand the securities they are investing in and work with qualified professionals who can help them make informed decisions. By doing so, they can help protect themselves from potential losses and avoid the pitfalls that led to the financial crisis.