UBS to pay $230M arising from conduct leading up to financial crisis

UBS has reached a $230 million settlement with the Department of Justice in connection with the packaging, marketing, sale, and issuance of residential mortgage-backed securities to investors leading up to the financial crisis. The settlement includes $189 million worth of consumer relief for New York homeowners and communities and $41 million in cash to New York State.

As part of this settlement agreement, UBS admits the findings contained in the statement of facts, agrees to pay $41 million in cash, and must provide significant community-level relief to New Yorkers, including monies that will contribute to more affordable housing construction. Additional resources will be dedicated to helping communities transform their code enforcement systems and invest in land banks. An independent auditor will report on UBS’s compliance with the consumer relief terms of the settlement to ensure that these obligations are met.

Based on the evidence uncovered by the Office of the Attorney General (OAG) during its investigation of UBS, the OAG concluded that, contrary to its representations, UBS sold investors RMBS backed by mortgage loans based on inaccurate statements in prospectus supplements and/or investor presentations for the RMBS. Many of the mortgage loans did not comply with underwriting guidelines or applicable laws and regulations, among other defects.

During this time, UBS’s diligence vendors determined that loans sold by the loan originators to UBS did not conform to underwriting guidelines, and yet UBS packaged and sold them anyway, the Justice Department stated. 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. 

Further, UBS’s review of securitized mortgage loans, which defaulted shortly after issuance, showed serious problems in the origination of the loans. Nevertheless, even after identifying these problems, UBS continued to purchase and securitize risky loans from the same originators.

UBS is the seventh large financial institution to settle with Attorney General Eric Schneiderman’s office since he was appointed co-chair of the RMBS Working Group by President Obama in 2012. Including today’s settlement, Attorney General Schneiderman has now secured $3.93 billion in cash and consumer relief for New Yorkers in the aftermath of the residential mortgage crisis—more than any other state. When combined with the National Mortgage Settlement, the total rises to $6 billion.