Massachusetts attorney general Martha Coakley announced that Barclays will pay $36.1 million to settle allegations that it financed, purchased, and securitized residential loans that were “presumptively unfair under Massachusetts law,” during the subprime mortgage meltdown.

Under Massachusetts law, mortgage lenders have to determine if a borrower can repay a prospective loan under the terms of the contract, according to the complaint.

The state said that the residential loans securitized by Barclays had several “high risk” features, including an introductory “teaser” period of three years or less where interest rates would be 2% lower than the fully indexed rate, a fully indexed debt-to-income ratio greater than 50%, and substantial prepayment penalties that extended beyond the teaser period with a loan-to-value ratio over 97%.

According to  the terms of the settlement, which was filed in Suffolk Superior Court, more than $25 million will be used for principal reduction and foreclosure relief payments for at least 450 Massachusetts subprime borrowers who had loans securitized by Barclays in 2006 and 2007.

Also, approximately $2 million of the compensation will be used to help cities and towns including Boston, Springfield, Brockton, Lowell, New Bedford and Worcester, where mortgage loans securitized by Barclays eventually became foreclosures.

Additionally, nonprofit organizations that are assisting with foreclosure relief efforts in Massachusetts will receive about $1 million from the settlement.

“The troubling practices of these Wall Street securitization firms greatly contributed to the economic crisis that harmed Massachusetts residents,” Coakley said in a press release. “This Barclays' settlement will help keep hundreds of people in their homes and recover more than $25 million in significant relief for borrowers who are still struggling with unsustainable subprime loans.”

Coakley said Barclays securitized loans from subprime originators such as Fremont, New Century, Option One and WMC Mortgage Corp., and packaged and sold these loans to the secondary market.

This marks the fourth case Coakley has reached an agreement with Wall Street investment firms following investigations into their securitization practices. The other companies that came to terms with the AG were Morgan Stanley, Goldman Sachs and the Royal Bank of Scotland.

Overall, the AG’s multiyear, industry wide investigation office has recovered more than $250 million in connection with securitization claims, therefore assisting thousands of homeowners across the state.

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