UBS reaches $230 million settlement with New York over toxic mortgage bonds

Required to provide $189 million in consumer relief

For the second time this month, the state of New York has reached a massive settlement with a bank that ends in “BS.”

Earlier this month, New York reached a $500 million settlement with the Royal Bank of Scotland over the bank’s “deceptive practices and misrepresentations to investors in connection with the packaging, marketing, sale, and issuance of residential mortgage-backed securities” leading up to the financial crisis.

And Wednesday, the office of New York Attorney General Eric Schneiderman announced that it reached a $230 million settlement with UBS over similar conduct.

According to Schneiderman’s office, UBS sold mortgage bonds to investors in 2006 and 2007 based on “inaccurate statements in prospectus supplements and/or investor presentations.”

Schneiderman’s office said that an investigation found that many of the underlying mortgages in the bonds in question did not comply with underwriting guidelines or applicable laws and regulations.

The New York investigation focused on 15 securitizations issued by UBS that were backed by subprime collateral and carried a total initial principal balance of more than $10 billion.

“During this time, UBS’s diligence vendors determined that loans sold by the loan originators to UBS did not conform to underwriting guidelines; yet UBS packaged and sold them anyway,” Schneiderman’s office said in a statement.

“Moreover, UBS limited the scope of the diligence conducted on mortgage loans, and UBS admits that it securitized various loans for which no diligence was performed to assess whether the loans conformed to underwriting guidelines or had other defects,” Schneiderman’s office continued. “Further, UBS’s review of securitized mortgage loans, which defaulted shortly after issuance, showed serious problems in the origination of the loans.”

Schneiderman’s office added that even after identifying these issues, UBS continued to buy and securitize risky mortgages from those same originators.

Eventually, the pools backing the securitizations suffered billions of dollars of losses, which then caused investors to experience shortfalls in principal and interest payments, as well as declines in the market value of their certificates.

Additionally, as Schneiderman’s office notes, “countless” New York homeowners and investors were then harmed as home values declined dramatically during the financial crisis.

Under the terms of the settlement, UBS will provide $189 million worth of consumer relief for New York homeowners and communities and $41 million in cash to New York itself.

“Years later, New Yorkers are still recovering from the housing crash, as communities grapple with the effects of plummeting home values, vacant properties, and an affordable housing crisis,” Schneiderman said in a statement.

“Today’s settlement marks another key step forward as New Yorkers rebuild their lives and communities,” Schneiderman continued. “The dollars we’ve secured have funded critical housing programs across New York – and this settlement means even more community revitalization work in the years to come.”

In a statement provided to HousingWire, UBS said that it was “pleased” to reach a settlement over these issues.

“We are pleased to have resolved this legacy RMBS matter from 2006 – 2007, for which UBS is fully provisioned,” the bank said in its statement. “It was achieved with the best interests of shareholders in mind.”

About the Author

Most Popular Articles

Housing market flashing recession signal

The housing market is signaling there will be an economic recession by the 2020 election, according to Benn Steil, director of international economics at the Council on Foreign Relations.

Oct 11, 2019 By

Latest Articles

Freddie Mac: Mortgage rates reverse course from last week’s low

This week, the average U.S. fixed rate for a 30-year mortgage jumped to 3.69%. That’s still more than a percentage point lower than the 4.85% of the year-earlier week.

Oct 17, 2019 By