UBS Agrees to Settle for $1.4 Billion in Residential Mortgage-Backed Securities Fraud Case

UBS' settlement amount aligns closely with the value of residential mortgages it originated from 2005 to 2007, the period during which it ceased issuing residential mortgage-backed securities. UBS had originated $1.5 billion in residential mortgages during those three years, as stated in a 2018 release countering allegations by the Justice Department.

During the years preceding the financial crisis, investment banks bundled and sold mortgage packages to institutional buyers, with the securities rated based on perceived quality and divided into different "tranches" to mitigate default risks.

However, the actual quality of the mortgages did not match the ratings, a fact unbeknownst to the buyers. UBS, like other banks that settled with the Justice Department, was aware of the non-compliance with underwriting standards underlying the mortgage-backed securities.

Prosecutors alleged that UBS carried out thorough due diligence on the underlying loans before creating and selling the securities to clients. Despite being aware of substantial issues with the products, the bank continued selling them and achieving financial success.

UBS had previously contended that it had met its obligations to clients, referring to them as "highly sophisticated investors" and some of the "largest financial institutions globally."