UBS To Pay $1.4 Billion Over Fraud In Residential Mortgage-Backed Securities  

• Swiss bank UBS agreed to pay a combined $1.4 billion in civil penalties over fraud and misconduct in its offering of residential mortgage-backed securities dating back to the global financial crisis, federal prosecutors announced Monday.
• The settlement concludes the final case brought by the U.S. Department of Justice against several of the largest financial institutions over misleading statements made to the purchasers of those mortgage-backed securities. The cumulative recoveries in the cases now total $36 billion, according to the Justice Department.
• In the years leading up to the financial crisis, investment banks packaged, securitized and sold bundles of mortgages to institutional buyers. Those securities were rated and graded according to quality, with various “tranches” of mortgages hypothetically safeguarding against the risk of a complete default.
• However, unbeknownst to the buyers, those mortgages were not as high quality as their ratings suggested. UBS, similar to other banks that settled with the Justice Department, were aware that the mortgages underneath the mortgage-backed securities didn’t comply with underwriting standards.
• UBS conducted “extensive” due diligence on the underlying loans before it created and sold the securities to its clients, prosecutors alleged, and despite knowing of the significant issues with the products, continued to sell them for financial success.

(Source: CNBC)