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FHFA Sues UBS to Recover Fannie and Freddie Losses

The ""Federal Housing Finance Agency"":http://www.fhfa.gov (FHFA) filed a lawsuit last week in a New York federal court against ""UBS Americas, Inc."":http://www.ubs.com/1/e/globalam/Americas/globalamus.html for violations of federal securities laws related to UBS' sale of $4.5 billion in private-label residential mortgage-backed securities (RMBS) to Fannie Mae and Freddie Mac.
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The lawsuit alleges that UBS Americas made material misstatements and omissions about the mortgage loans underlying the bonds, including the creditworthiness of the borrowers and the quality of the underwriting practices used to evaluate and approve the loans. FHFA says the financial services firm also failed to conduct adequate due diligence related to the securities offerings.

According to ""the suit filed"":http://www.fhfa.gov/webfiles/21841/FHFAvUBSstamped.pdf with the U.S. District Court for the Southern District of New York, FHFA is seeking to

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recover ""hundreds of millions of dollars"" in losses and damages sustained by the GSEs as a result of their investments in UBS Securities.

Fannie and Freddie claim that they have already lost in excess of 20 percent of their entire investment of over $4.5 billion.

The RMBS deals were conducted between September 2005 and August 2007. FHFA says Fannie and Freddie would not have purchased the certificates from UBS had they been rightfully informed of the credit quality and characteristics of the mortgage loans underlying the deals.

The mortgage loans included in the securities ""experienced defaults and delinquencies at a much higher rate than they would have had the loan originators adhered to the underwriting guidelines"" disclosed by UBS, FHFA said in the court documents.

Last year, FHFA launched an expansive investigation in connection with private-label RMBS bought by the GSEs during the housing boom, issuing 64 subpoenas to financial services firms involved in questionable deals.

This lawsuit is the first to result from that investigation, and Edward DeMarco, FHFA acting director says there are “further actions to come.”

“[W]e continue to seek redress for the losses suffered by the Enterprises,” DeMarco said.

UBS Americas did not return requests for comment.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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