UBS to Pay Fannie Mae and Freddie Mac $885M to Settle RMBS Lawsuit

UBS (UBS) will pay $885 million to settle Federal Housing Finance Agency to settle allegations that it misrepresented mortgage-backed bonds during the housing bubble. $415 million of the mortgage settlement will go to Fannie Mae, while $470 million will be paid to Freddie Mac, both government-sponsored enterprises, over the $200 million in mortgage-backed securities that were sold to them.

According to FHFA, UBS misrepresented the quality of loans that were underlying residential mortgage-backed securities worth billions of dollars that Freddie Mac and Fannie Mae ended up buying. Both firms were seized in 2008 when losses from subprime mortgages brought them close to insolvency. They still are under US conservatorship.

UBS is the third to settle with FHFA over RMBS allegations. Citigroup (C) and General Electric Co. (GE) were the first.

The federal regulator is suing 18 banks, and already, Deutsche Bank (DB) and Credit Suisse (CS) have put money aside for their potential settlements. Analysts are estimating that European banks may end up paying $11 billion for mortgage-related litigation in the US, with Royal Bank of Scotland (RBS) perhaps having to pay $1.6 billion, HSBC $900 million, and Barclays (BCS) $1.1 billion.

Other banks that FHFA is suing on behalf of Freddie and Fannie:

Bank of America Corp. (BAC)
• Countrywide Financial Corp.
• Ally Financial
• First Horizon National Corporation
• Goldman Sachs & Co. (GS)
JPMorgan Chase 7 Co. (JPM)
• HSBC North America Holdings, Inc.
Morgan Stanley (MS)
Merrill Lynch & Co. (MER)
• Nomura Holding America Inc.
• Société Générale

The securities complaints were filed in state and federal courts and invoke government is seeking, in addition to compensatory damages.
GE was the first to settle FHFA’s mortgage bond case against it. The company was one of the underwriters to the RMBS that were sold to Fannie and Freddie. The terms of the settlement, however, remain confidential. However, FHFA did accuse GE of misleading Freddie Mac into purchasing $549 million of securities.
Citibank’s RMBS settlement with FHFA was also resolved with the terms left confidential. That mortgage-backed securities lawsuit was over allegations that it misled Freddie Mac and Fannie Mae into purchasing $3.5B of the securities.
Residential Mortgage-Backed Securities
RMBS are a type of MBS with a cash flow that comes from, residential debt, including home-equity loans, residential mortgages, and subprime mortgages, rather than commercial debt. At The SSEK Partners Group, our securities lawyers help investors that suffered losses from mortgage-backed securities in getting their investments back from negligent brokerage firms, brokers, and investment advisers. We represent corporations, high net worth individuals, banks, partnerships, financial firms, private foundations, large trusts, charitable organizations, school districts, retirement plans, and municipalities.

GE Settles FHFA Suit Over Freddie Mac Mortgage Bonds, Bloomberg, January 23, 2013

FHFA Sues 17 Firms to Recover Losses to Fannie Mae and Freddie Mac, FHFA, September 2, 2011

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