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U.S., UBS agree to $885-million settlement over mortgage bonds

WASHINGTON -- U.S. regulators said Thursday that they reached an $885-million settlement with UBS Americas Inc. of a suit alleging that the subsidiary of the Swiss banking giant misrepresented mortgage bonds it sold to Fannie Mae and Freddie Mac.

The settlement covers securities backed by home mortgages that were sold to Fannie and Freddie during the subprime housing market boom in 2004 to 2007, the Federal Housing Finance Agency said.

The agency, the regulator for Fannie and Freddie, sued UBS in 2011, alleging more than $900 million in losses from the purchase of the bad bonds. Freddie will receive $470 million and Fannie $415 million under the settlement, the FHFA said.

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“The satisfactory resolution of this matter provides greater clarity and certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae’s and Freddie Mac’s assets on behalf of taxpayers,” said Edward J. DeMarco, the agency's acting director.

The FHFA sued 18 banks in 2011 alleging they misrepresented the quality of the mortgages packaged into the securities. Huge losses on those securities helped push Fannie and Freddie to the brink of bankruptcy in 2008, leading the government to seize them and bail them out.

UBS was the third bank to settle with the FHFA this year, following General Electric Co. and Citigroup Inc.

The terms of those earlier settlements were not released.

UBS said Monday that it had reached a preliminary agreement to settle the FHFA suit. It did not specify the amount, but said its second-quarter earnings would include a $746-million pretax charge for litigation related to the bank's previous housing market activity.

A UBS spokeswoman did not immediately respond to a request for comment.

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