UBS AG, Switzerland’s largest bank, has agreed to pay $885 million to Fannie Mae and Freddie Mac to settle claims that it improperly sold them mortgage-backed securities during the housing bubble. The Federal Housing Finance Agency (FHFA) claimed Zurich-based UBS misrepresented the quality of loans underlying billions of dollars in residential mortgage-backed securities purchased by Fannie Mae and Freddie Mac. The firms have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency.
UBS disclosed last month that it had reached an agreement in principle to settle the suit. The FHFA sued UBS in 2011 over $4.5 billion in residential mortgage-backed securities that UBS sponsored and $1.8 billion of third-party RMBS sold to Fannie Mae and Freddie Mac. The suits alleged losses of at least $1.2 billion plus interest. Fifteen other banks still need to resolve similar lawsuits. Acting Director Edward J. DeMarco said in a statement:
The satisfactory resolution of this matter provides greater clarity and certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae’s and Freddie Mac’s assets on behalf of taxpayers.
FHFA sued UBS and 17 other banks in 2011, seeking to recover losses on a total of $200 billion in mortgage-backed securities sold to the two government-sponsored enterprises. UBS is the third bank to reach an agreement with FHFA. Citigroup Inc. and General Electric Co. each paid undisclosed amounts to settle the regulator’s claims.
UBS is seeking to resolve various legal matters as Chief Executive Officer Sergio Ermotti scales down the investment bank to focus on money management. The bank was fined about 1.4 billion francs in December by regulators in the U.S., U.K. and Switzerland for altering its submissions used to set benchmarks such as the London interbank offered rate.
In November, U.S. District Judge Denise Cote, who is overseeing the UBS suit and most of the other FHFA suits, denied a request by Citigroup, Bank of America Corp. and two other banks to dismiss them. The case is Federal Housing Finance Agency v. UBS Americas Inc., U.S. District Court, Southern District of New York (Manhattan).
Source: Bloomberg News
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