UBS to pay $230 million over sales of shoddy mortgage bonds

Banking giant UBS will fork over $230 million to settle a New York State claim that it knowingly sold shoddy mortgage-backed securities during the run-up to the financial crisis. The settlement includes $189 million in consumer relief for New York homeowners and $41 million in cash to the state.

According to the state attorney general’s office, UBS sold investors residential mortgage-backed securities based on inaccurate statements in prospectus supplements and investor presentations. Many of the mortgages backing the bonds didn’t comply with underwriting guidelines and applicable laws and regulations. During the financial crisis, the loan pools backing the securitizations suffered billions of dollars in losses.

UBS knew the loans weren’t up to par, according to the AG’s office. The bank’s diligence vendors determined that loans the bank purchased from originators didn’t conform to underwriting guidelines, but UBS packaged and sold them anyway. The bank also admitted that it securitized many loans for which no diligence was performed at all. And even after identifying problem loans, UBS continued to purchase and securitize risky loans from the same originators.

“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,” said New York Attorney General Eric Schneiderman. “Today’s settlement marks another key step forward as New Yorkers rebuild their lives and communities. 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.”

UBS is the seventh large financial institution to settle with Schneiderman’s office since he was appointed co-chair of the RMBS Working Group by then-president Barack Obama in 2012. Schneiderman’s office has now secured $3.93 billion in cash and consumer relief from the settlements.