Analyst calls FHFA v. UBS suit a game-changer
The Federal Housing Finance Agency lawsuit against UBS Americas (UBS) could be a game-changer — one that is followed by other investors harmed by alleged misrepresentations on mortgage-backed securities, according to Chris Gamaitoni, an analyst with Compass Point Research & Trading. Last week, FHFA – conservator to Fannie Mae and Freddie Mac – sued UBS and other defendants over the sale of $4.5 billion in private-label mortgage backed securities. In the suit, FHFA claims misrepresentations were made about the quality of loans underlying the securities and on underwriting guidelines. The FHFA seeks to recover losses and damages sustained by Fannie and Freddie as a result of the agency's investments in UBS securities. Gamaitoni warns the case could have a larger impact since it "will significantly increase the likelihood of success of other suits as concrete evidence is documented and further actions against other underwriters are taken." In his report on the case, Gamaitoni says FHFA, unlike private plaintiffs, had the option to perform discovery on loan files before filing suit in court. After reviewing 966 loans, he said the FHFA found a "material amount of violations to loan underwriting guidelines and misrepresentations of collateral data in prospectuses." "In our opinion, the evidence provided in this lawsuit is the most detail public information of origination violations to date." Gamaitoni said. Going forward, he believes the FHFA case has the potential to document more concrete evidence of violations, increasing the likelihood of success when it comes to other suits against underwriters of private-label MBS deals. Write to Kerri Panchuk.