WASHINGTON - The regulator of government-controlled mortgage buyers Fannie Mae and Freddie Mac is suing UBS AG in an effort to recoup more than $900 million in losses from mortgage-backed securities purchased from the banking giant during the housing boom.
The Federal Housing Finance Agency filed the lawsuit in US District Court for the Southern District of New York yesterday against UBS Americas Inc., several other units of the Swiss bank, and three former executives. It claims the defendants violated securities laws and seeks restitution of the two mortgage companies’ losses, plus interest.
Fannie and Freddie bought more than $4.5 billion in home loans pooled into securities from UBS between 2005 and 2007. In the complaint, their regulator said claims UBS left out or failed to correctly provide key information about the individuals who took out the loans Fannie and Freddie acquired.
Specifically, the FHFA said asserts that the bank omitted or misstated details about borrowers’ creditworthiness, ability to pay back their mortgage, and the underwriting practices used to evaluate and approve the loans.
“As a result of defendants’ misstatements and omissions of material fact, Fannie Mae and Freddie Mac have suffered substantial losses as the value of their holdings has significantly deteriorated,’’ the FHFA said.
The agency cites a review of several hundred loan files that found numerous instances in which the bank failed to confirm borrowers’ stated income and debt - key factors in determining whether tehy qualified for a loan.
FHFA also said claims that supporting documents on the mortgage-backed securities Fannie and Freddie bought from UBS exaggerated the percentage of properties where the borrower also lived in the home.
Fannie and Freddie calculated that calculate they have lost more than 20 percent of the more than $4.5 billion they invested buying mortgage-backed securities from UBS.
In a statement, UBS said it is reviewing the lawsuit and intends to defend itself vigorously.
Fannie Mae and Freddie Mac, own or guarantee about half of all mortgages in the nation. While Fannie and Freddie didn’t make subprime loans, they did buy securities tied to those risky mortgages. The companies had said they felt pressure to compete against Wall Street firms that were backing extremely risky loans.
The government rescued them from the brink of failure in September 2008 after they nearly toppled .
