UBS Must Face FHFA Claims Over Mortgage Bonds, Judge Says

UBS AG must face claims from the federal agency that oversees Fannie Mae and Freddie Mac over $6.4 billion in mortgage bonds purchased by the mortgage-finance companies, a judge ruled.

U.S. District Judge Denise Cote in Manhattan refused to throw out the Federal Housing Finance Agency’s securities law claims while she dismissed negligent-misrepresentation claims, according to a decision yesterday.

The FHFA sued UBS in July, accusing Switzerland’s biggest bank of making misrepresentations about mortgage loans underlying securities purchased by Fannie and Freddie, according to an amended complaint. In September, the agency sued 17 financial institutions, including Bank of America Corp. and JPMorgan Chase & Co., over losses on mortgage bonds.

UBS is reviewing the decision and “remains confident in its defenses,” Christiaan Brakman, a spokeman for the Zurich-based lender, said in an e-mailed statement.

UBS had said in court papers that the lawsuit was an attempt by Fannie and Freddie to shift blame for losses stemming from “the nationwide housing crisis in which they played a critical role.”

‘Deepest Recession’

“The losses sustained on their real estate portfolio are attributable to the deepest recession in 75 years,” Brakman said about the companies.

The FHFA said UBS caused billions of dollars in damages to Fannie and Freddie on loans that didn’t live up to their promised quality. The agency plausibly alleged that offering materials contained false statements about loan originators’ compliance with underwriting standards, Cote said in the decision.

“FHFA is pleased with the court’s ruling in this matter and will continue to pursue its claims against the parties, which is important to the enterprises and taxpayers,” Stefanie Johnson, a spokeswoman for the FHFA, said in an e-mailed statement.

The case is Federal Housing Finance Agency v. UBS Americas Inc., 11-5201, U.S. District Court, Southern District of New York (Manhattan).

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