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The
accord was made public on Wednesday, and requires approval by
U.S. District Judge Deborah Batts in Manhattan.
It resolves claims that offering materials prepared by the banks
misled investors into believing that loans underlying roughly
$7.55 billion of NovaStar mortgage-backed securities they bought
were properly underwritten, and were safe.
NovaStar had specialized in lower-quality residential mortgages,
including many packaged into what proved to be risky securities
issued in 2006 and 2007.
The company filed for Chapter 11 protection last July, and is
not contributing to the payout.
Steven Toll, a lawyer for investors led by the New Jersey
Carpenters Health Fund, said participants in the settlement are
expected to receive about 3.1 cents per dollar of face value.
He said that exceeded recoveries in similar settlements
involving Bank of America Corp, IndyMac Bancorp Inc, JPMorgan
Chase & Co, Morgan Stanley and others.
"This is a significant recovery," Toll said in an interview.
"Thousands of workers associated with the New Jersey fund and
others are going to benefit."
Holders of $2.2 billion of the NovaStar securities are not
expected to join in the settlement.
Hundreds of lawsuits have been filed nationwide against banks
over mortgage securities sold prior to the 2008 financial
crisis. The NovaStar settlement is one of the last remaining
private class actions of this type to settle.
The case is New Jersey Carpenters Health Fund v Royal Bank of
Scotland Group Plc et al, U.S. District Court, Southern District
of New York, No. 08-05310.
(Reporting by Jonathan Stempel in New York; Editing by Jonathan
Oatis
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