Investors have agreed to settle a nine-year class-action lawsuit against Kansas City-based NovaStar Mortgage Inc. and three Wall Street banks over investment losses tied to subprime mortgages.
The settlement calls for a $165 million cash payment from NovaStar Mortgage, Royal Bank of Scotland, Wells Fargo and Deutsche Bank, according to a statement from the investors’ attorneys. All four had been sued after the investors — including the New Jersey Carpenters Health Fund and the Iowa Public Employees’ Retirement System — suffered losses on securities backed by mortgages and sold to them by NovaStar.
“After years of hard-fought litigation — which included a dismissal, an appeal, and even the bankruptcy of some of the defendants — thousands of workers will finally get some financial relief,” Steven J. Toll, managing partner of Cohen Milstein Sellers & Toll, said in the statement.
The settlement faces approval from the U.S. District Court in the Southern District of New York.
Novation Companies Inc., its subsidiary NovaStar Mortgage and other businesses it owns filed for bankruptcy reorganization in July 2016. The companies submitted a plan of reorganization in February.
The investors’ lawsuit had claimed that NovaStar “hid how it systematically disregarded its own underwriting guidelines to increase the number of mortgages it could originate and incentivized its employees to make non-compliant loans to extremely risky borrowers,” the announcement said.