Bankers at Royal Bank of Scotland (RBS) admitted they were selling “total f****** garbage” to investors and made light of destroying the housing market in the lead-up to the financial crisis, damning documents released by US authorities show.

The quotes were published by the US Department of Justice (DoJ) after announcing it had finalised a 4.9 billion US dollar (£3.8 billion) settlement with RBS over the mis-selling of residential mortgage-backed securities (RMBS) between 2005 and 2008.

RMBS were home loans bundled together as tradeable assets that helped spark the financial crash.

The documents detail how RBS “routinely made misrepresentations to investors about significant risks it failed to disclose about its RMBS”, according to the DoJ, which has accused the bank of failing on due diligence around the packaged loans and including loans that were unlikely to be repaid.

It cites RBS’s chief credit officer in the US as saying that the assets were made up of “total f****** garbage” loans with “fraud (that) was so rampant … (and) all random,” so “the loans are all disguised to, you know, look okay kind of … in a data file”.

Throughout the deals, the DoJ said RBS executives joked and showed little regard for their misconduct.

RBS’s head trader received an email from a friend that said: “(I’m) sure your parents never imagine(d) they’d raise a son who (would) destroy the housing market in the richest nation on the planet.”

The head trader answered: “I take exception to the word ‘destroy.’ I am more comfortable with ‘severely damage.’”

The DoJ estimates RBS underwrote and issued mortgage-backed securities that have so far resulted in losses worth more than 49 billion US dollars (£38 billion), and forecasts another 5.6 billion US dollars (£4.4 billion) will be lost.

While RBS has agreed to pay a 4.9 billion US dollar (£3.8 billion) fine to the DoJ, it disputes and has not admitted the allegations put forward by American authorities.

The UK bank was the world’s third largest underwriter of RMBS behind Lehman Brothers and Bear Stearns.

US authorities highlighted that while Lehman and Bear Stearns collapsed, RBS went on to be rescued in a £45 billion bailout by the UK government in 2008.

Andrew Lelling, the US attorney for the district of Massachusetts, said: “This resolution – the largest of its kind – holds RBS accountable for defrauding the people and institutions that form the backbone of our investing community.

“Despite assurances by RBS to its investors, RBS’s deals were backed by mortgage loans with a high risk of default.

“Our settlement today makes clear that institutions like RBS cannot evade responsibility for the damage caused by their illicit conduct, and it serves as a reminder that the Justice Department, and this office, will hold those who engage in fraudulent conduct accountable.”

RBS chief executive Ross McEwan said: “We are pleased to have reached a final settlement with the DoJ and that we can focus our energy on serving our customers better and returning capital to our shareholders.

“This settlement dates back to the period between 2005 and 2007.

“There is no place for the sort of unacceptable behaviour alleged by the DoJ at the bank we are building today.”