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UBS Must Face Assured Guaranty Claims Over Mortgage Loans

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UBS AG must face claims in a lawsuit brought by bond insurer Assured Guaranty Ltd., which alleges UBS misrepresented the risk of loans underlying $1.5 billion in mortgage securities.

U.S. District Judge Harold Baer in Manhattan, in a decision filed yesterday, dismissed some claims and said others will proceed against UBS Real Estate Securities Inc.

Assured Guaranty Municipal Corp. sued the UBS unit in February, claiming UBS “materially and pervasively” breached promises about the quality of loans backing securities for which Assured agreed to guarantee payments to investors.

The mortgage securitizations at issue in the lawsuit included a “massive number” of defective loans and have defaulted at higher rates than if they had conformed to standards UBS represented, Assured said in its complaint.

Assured’s claim for breach of mortgage representations will proceed along with a claim that UBS obtained “falsely inflated shadow ratings” from ratings companies, Baer said in his decision. The judge dismissed a claim against UBS for failure to repurchase defective loans.

Karina Byrne, a spokeswoman for Zurich-based UBS, didn’t respond to an e-mail seeking comment on the suit. Ashweeta Durani, a spokeswoman for Hamilton, Bermuda-based Assured, said the company was reviewing the decision.

The case is Assured Guaranty Municipal Corp. v. UBS Real Estate Securities Inc. 12-cv-1579, U.S. District Court, Southern District of New York (Manhattan).

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