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UBS Agrees to RMBS Settlement

Two units of UBS have agreed to settle allegations that they misled investors about the quality of toxic mortgage securities.

In 2006 and 2007,
UBS Real Estate Securities Inc. and UBS Securities LLC were in the business of issuing residential mortgage-backed securities.

During that two-year period, the pair of UBS units participated in the process of securitizing tens of thousands of residential loans.

But an investigation by the
Office of the New York Attorney General on 15 UBS Real Estate securitizations with more than $10 billion in subprime loans found that UBS was misleading investors about the quality of the loans.

to the attorney general, many of the loans were originated by third parties who didn’t follow UBS’ guidelines — even though investors were told that the loans mostly followed the guidelines.

Third-party vendors that conducted due diligence on the
loans found that many didn’t meet UBS’ own requirements. In some cases, value estimates were way off — pushing loan-to-value ratios too high.

The marginal loan quality led to billions of dollars in investor losses.

An announcement Wednesday from the attorney general indicated that UBS has agreed to settle the allegations of misleading marketing of the RMBS.

The $230 million settlement includes a $41 million cash payment to the state and $189 million in consumer relief for residents of New York.

“Based on the evidence uncovered by the Office of the Attorney General 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,” the statement said.

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