UBS’ Liability in $2B Mortgage Suit Pruned

     MANHATTAN (CN) — This past spring, UBS faced a trial over $2 billion in investor damages related to the 2008 housing crisis, but an order issued Tuesday clears a path for a smaller penalty.
     Three trusts represented by U.S. Bancorp have spent for four years trying to hold the Zurich-based UBS liable for breaching warranties on over 12,000 of approximately 17,000 mortgage loans originally pooled.
     On the road to trial, the trusts dropped their estimates to more than 9,800 loans that they claimed to be defective, and the case finally went to a bench trial before U.S. District Judge Kevin Castel from April 18 to May 13 this year.
     Four UBS managers and traders took the stand along with one of the trust’s executives and experts from both parties. The banks and trustees also submitted two terabytes of data — including thousands of loan files — for the court’s review.
     After digesting the enormous record over the summer, Castel issued a 239-page ruling clearing the bank of turning a blind eye toward the loans’ deficiencies.
     “The trusts have not established that UBS was willfully blind to widespread breaches of warranties across the loans in the three trusts,” he wrote.
     UBS manager Jonathan Lantz testified that the bank had “ceased its surveillance operations around the same time that it wound down its business of structuring and selling [residential mortgage-backed securities] pools,” according to the ruling.
     But Castel also found that UBS would have to repurchase or pay damages for 13 out of 20 loans that he examined, described in the ruling as “exemplar loans.”
     Thousands of other loans still need to be reviewed.
     “The trial is over,” he wrote. “With the exception of calculation of damages and withdrawal of claims of breach by the trusts, the evidence is closed. But findings of fact and conclusions of law based upon the existing trial record remain to be made as to thousands of loans.”
     Castel said that court-appointed masters will make these determinations.
     The trusts’ success in finding UBS’s liabilities among the exemplar loans is not necessarily a sign of future victories.
     “There is no basis to conclude that the exemplar loans discussed below are representative of the universe of loans,” the ruling states.
     UBS declined to comment, and lawyers for the trusts did not respond to an emailed request for comment.

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