UBS, the largest Swiss bank, agreed to pay $885 million to the U.S. sponsored companies Federal Mortgage Association, also known as Fannie Mae and Federal Home Loan Mortgage Corporation, known as Freddie Mac, to close a dispute accusing it of improperly rating mortgage-backed securities, before 2008. Fannie Mae will get $415 million, while Freddie Mac will get $470 million. The two group have received so far over $187 billion in taxpayer money.
Federal Housing Financing Agency (FHFA) claimed that UBS overrated the quality of loans that led to the financial instruments sold to Fannie Mae and Freddie Mac. The two agencies were taken under federal administration in 2008 because of losses related to subprime mortgage loans that brought them to bankruptcy. FHFA director announced that the settlement provides “clarity and certainty in the marketplace.”
UBS announced earlier this week that it reached an agreement in principle with the U.S. authorities to close the investigation.
FHFA sued UBS in 2011 for securities backed by residential mortgage loans worth $4.5 billion and other debt of $1.8 billion sold by a third party to Fannie Mae and Freddie Mac. According to the agency, these bonds have generated losses of at least $1.2 billion plus interest.
UBS is the third financial institution that settled with FHFA. According to Reuters, Citigroup and General Electric paid undisclosed amounts for closing similar claims. Another 15 banks are still under investigation. Barclays PLC and JP Morgan Chase & Co. will most probably the next financial institutions to face similar settlements. 18 large banks were accused of overstating the value of bundled mortgage securities before the 2008 financial crisis.
The Swiss bank announced last week it put aside a 865-million francs provision for the litigation in the U.S. and also for a tax agreement between Switzerland and the UK.
UBS profit rose to about 690 million francs ($743 million) in the second quarter, from 524 million francs ($564) a year ago.
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