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$4.5 Billion in Soured RMBS Investments at Issue in Lawsuit

The regulator in control of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. has filed a lawsuit claiming that the two government-controlled enterprises were deceived on more than $4 billion in non-agency residential mortgage-backed securities they acquired.

The lawsuit was filed Wednesday by the Federal Housing Finance Agency in U.S. District Court for the Southern District of New York, according to an announcement from the Washington, D.C.-based regulator.

The defendants include UBS Americas Inc., UBS Real Estate Securities Inc., UBS Securities LLC, Mortgage Asset Securitization Transactions Inc. In addition, former UBS executives David Martin, Per Dyrvick, Hugh Corcoran and Peter Slagowitz are also named as defendants.

The FHFA alleges violations of federal securties laws in the sale of $4.5 billion in private-label RMBS to Fannie Mae and Freddie Mac.

FHFA was established as part of The Housing and Economic Recovery Act of 2008 to regulate the two secondary lenders along with the government-sponsored enterprises that make up the Federal Home Loan Bank System. FHFA took control of Fannie and Freddie during September 2008 in the heat of the global financial crisis and is charged with preserving and conserving the assets of two firms.

“The lawsuit alleges that UBS Americas made numerous material misstatements and omissions about the mortgage loans underlying the private-label MBS, including the creditworthiness of the borrowers and the quality of the origination and underwriting practices used to evaluate and approve such loans,” FHFA’s statement said. “The defendants also failed to conduct adequate due diligence.”

FHFA said that it expects to file additional lawsuits.

Federal Housing Finance Agency, as Conservator for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., Plaintiff, -against- UBS Americas Inc., UBS Real Estate Securities Inc., UBS Securities LLC, Mortgage Asset Securitization Transactions Inc.. David Martin, Per Dyrvick, Hugh Corcoran and Peter Slagowitz, Defendants.
Case No. 11 CIV 5201, July 27, 2011 (U.S. District Court for the Southern District of New York).

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