New York, NY - March 21, 2018 - Attorney General Eric T. Schneiderman today announced a $230 million settlement with UBS in connection with the packaging, marketing, sale, and issuance of residential mortgage-backed securities (RMBS) to investors leading up to the financial crisis. The settlement includes $189 million worth of consumer relief for New York homeowners and communities and $41 million in cash to New York State.
UBS is the seventh large financial institution to settle with Attorney General Schneiderman’s office since he was appointed co-chair of the RMBS Working Group by President Obama in 2012. Attorney General Schneiderman has now secured $3.93 billion in cash and consumer relief for New Yorkers in the aftermath of the residential mortgage crisis — more than any other state. When combined with the National Mortgage Settlement, the total rises to $6.06 billion.
“Years later, New Yorkers are still recovering from the housing crash, as communities grapple with the effects of plummeting home values, vacant properties, and an affordable housing crisis,” said Attorney General Schneiderman. “Today’s settlement marks another key step forward as New Yorkers rebuild their lives and communities. The dollars we’ve secured have funded critical housing programs across New York – and this settlement means even more community revitalization work in the years to come.”
As part of this settlement, UBS admits the findings contained in the statement of facts, agrees to pay $41 million in cash, and must provide significant community-level relief to New Yorkers, including monies that will contribute to more affordable housing construction. Additional resources will be dedicated to helping communities transform their code enforcement systems and invest in land banks. An independent auditor will report on UBS’s compliance with the consumer relief terms of the settlement to ensure that these obligations are met.
Based on the evidence uncovered by the Office of the Attorney General during its investigation of UBS, the OAG concluded that, contrary to its representations, UBS sold investors RMBS backed by mortgage loans based on inaccurate statements in prospectus supplements and/or investor presentations for the RMBS. Indeed, many of the mortgage loans did not comply with underwriting guidelines or applicable laws and regulations, among other defects. The loan pools backing the securitizations suffered billions of dollars of collateral losses, causing investors to experience shortfalls in principal and interest payments, as well as declines in the market value of their certificates. The conduct uncovered by Attorney General Schneiderman’s office harmed countless New York homeowners and investors, as home values declined dramatically during the financial crisis.
During this time, UBS’s diligence vendors determined that loans sold by the loan originators to UBS did not conform to underwriting guidelines; yet UBS packaged and sold them anyway. Moreover, UBS limited the scope of the diligence conducted on mortgage loans, and UBS admits that it securitized various loans for which no diligence was performed to assess whether the loans conformed to underwriting guidelines or had other defects. Further, UBS’s review of securitized mortgage loans, which defaulted shortly after issuance, showed serious problems in the origination of the loans. Nevertheless, even after identifying these problems, UBS continued to purchase and securitize risky loans from the same originators.
Including today’s settlement, Attorney General Schneiderman has now recovered more than $3.93 billion in cash and consumer relief from RMBS settlements, more than any other state. Prior settlements were negotiated through the Residential Mortgage-Backed Securities Working Group, co-chaired by Attorney General Schneiderman. In collaboration with the Department of Justice (DOJ), other federal entities, and several state law enforcement agencies, the Working Group investigated those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities.
“I applaud Attorney General Schneiderman’s true and lasting commitment to the recovery of communities across New York crippled by the financial crisis,” said Madeline Fletcher, Executive Director, Newburgh Community Land Bank. “In our work as land banks, these funds have exponentially enhanced our impact as we address blight, revitalize neighborhoods and continue to improve the quality of life of thousands of New Yorkers. We are so grateful for his continued support and visionary leadership.”
“Thank you to Attorney General Schneiderman for holding large financial institutions accountable for their role in the financial crisis and for reinvesting the settlement funds back into our communities,” said Adam Zaranko, President of the New York Land Bank Association and Executive Director of the Albany County Land Bank. “Thanks to the Attorney General’s leadership, New York State has developed one of the most active networks of land banks in the United States. These much needed funds will help revitalize neighborhoods throughout the state and transform foreclosed, vacant or abandoned properties into safe and affordable homes for more New Yorkers.”
This matter was led by Assistant Attorney General Tanya Trakht of the Investor Protection Bureau, Senior Enforcement Counsel Steven J. Glassman, and Cynthia Hanawalt, Enforcement Section Chief of the Investor Protection Bureau, under the supervision of Executive Deputy Attorney General of the Economic Justice Division Manisha M. Sheth.