Latest Wall Street Suit Targets UBS Sales To Fannie, Freddie

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WASHINGTON – The federal regulator for Fannie Mae and Freddie Mac on Wednesday filed suit against UBS to recover more than $900 million of losses after the Swiss bank allegedly misled the housing agencies into buying $4.5 billion of risky mortgage debt.

The suit is the latest action by regulators targeting Wall Street banks over their sale of MBS during the mortgage meltdown. NCUA is suing JP Morgan and RBS Securities over MBS the two banks sold to the two biggest credit union failures, U.S. Central FCU and WesCorp FCU.

The new lawsuit, filed by the Federal Housing Finance Agency in U.S. District Court for the Southern District of New York, is the agency’s first lawsuit against a major investment bank seeking to recover money for the two government-controlled mortgage giants. Their near-collapse in fall 2008 has cost taxpayers $138 billion to date.

In announcing the suit, the Agency said it also plans more lawsuits to recover additional losses by Fannie Mae and Freddie Mac from investments in private-label debt.

The suit alleges that UBS made false statements about 16 mortgage-backed securities sponsored by UBS and sold to Fannie and Freddie from fall 2005 through summer 2007, including overstatements of borrowers’ capacity to repay loans.

FHFA’s lawsuit focuses on so-called private-label securities based on subprime and other risky loans that were originated by mortgage companies, packaged by Wall Street firms, and then sold to investors. The securities contained loans made by defunct mortgage companies New Century Financial and American Home Mortgage, as well as IndyMac Bank, renamed OneWest Bank, and Countrywide Home Loans, now part of Bank of America Corp. Many of the same originators also are cited in NCUA’s suits.

Fannie and Freddie have already lost at least 20% of their investment in $4.5 billion in mortgage-backed securities, the lawsuit says.

The agency's acting director, Edward DeMarco, promised “further actions to come. We continue to seek redress for the losses.”

 

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