UBS blamed in US trial for $2.1 billion in mortgage bond losses
Apr 19, 2016 01:06 AM EDT
Following their trial on Monday, UBS AG was blamed for the $2.1 billion losses in the market that investors incurred. The loss was traced back to the mortgage-backed securities since the collapse of the US housing market.
According to Reuters, a non-jury trial held on Manhattan federal court stemmed from a lawsuit filed by US Bancorp on behalf of three trusts established for the mortgage-backed securities. The mortgage-backed securities are the financial products sold to consumers during the 2008 financial crisis that brought down the economy.
Sean Baldwin, a lawyer for the trusts, said that UBS contractually agreed that the mortgages underlying those securities would meet certain standards. But when the pervasive defects emerged, they refused to buy them back. He explicitly said that "UBS's strategy has always been the same throughout this process: Turn a blind eye to the problems and ignore its contractual obligations."
Yahoo reported that a lawyer for UBS thwarted the claim. Thomas Nolan told US District Court judge Kevin Castel that the trusts' lawyers were looking at the loans with 'hindsight bias' and that their stand is to question if the loans were seen as effective as when it was issued in 2006 and 2007. Nolan said "Sophisticated parties on both sides knew what they were getting into." The case is notably one of the handful to go to trial in recent years over the losses incurred on the mortgage bond following the collapse of the market.
Business Insider published that the lawsuit is one of the actions threatened against UBS over the same mortgage bonds. UBS in 2013 settled with $358 million to Assured Guaranty Ltd which was also represented by the lawyers of the current case. Baldwin added that 9,611 loans among 17,082 contained material defects since they didn't comply with the borrower fraud or even underwriting requirements.
Baldwin argues that UBS failed to examine the loans, which it acquired through 'shady' lenders and later failed. He said there is no surprise that there is a huge volume of materially defective loans, adding that the $2.1 billion loss is the result.