(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
By Agnes T. Crane
NEW YORK, July 26 (Reuters Breakingviews) - The $885 million
UBS UBSN.VX settlement with the Federal Housing Finance Agency
is a big win for Edward DeMarco. As head of the U.S. agency that
oversees Fannie Mae FNMA.OB and Freddie Mac FMCC.OB, he has
become one of the most reviled regulators inside the beltway.
The legal victory should earn him some well-deserved respect.
The lawsuit against UBS is only the third to settle among
the 18 that FHFA filed in 2011 against lenders for allegedly
selling Fannie and Freddie a bill of goods during the height of
the housing bubble. And the Swiss bank was hardly the biggest
player. The $4.5 billion of allegedly dodgy bonds it sold to the
housing agencies are a small fraction of the $200 billion at
issue in the lawsuits.
Bank of America (BAC.N) may be the bank with the most to
lose, having bought subprime lender Countrywide and brokerage
firm Merrill Lynch. The two were among the biggest participants
in Wall Street's game of dressing up low-quality home loans as
top rated bonds. FHFA reckons all three peddled some $58 billion
in questionable paper. The UBS payout — about one fifth the
amount of the bonds the bank sold — suggests BofA could
theoretically be on the hook for as much as $12 billion.
The lenders’ losses, however, should be taxpayers’ gain.
Though Fannie and Freddie will split the UBS settlement, they’ll
probably give it to the U.S. Treasury, because they are already
profitable. That could mean as much as $40 billion ultimately
flowing into government coffers, assuming all the banks reach
agreements even close to UBS’s deal.
That’s real money, the kind regulators like the Securities
and Exchange Commission can only dream of raking in. DeMarco's
unusual decision to hire top law firm Quinn Emanuel Urquhart &
Sullivan to sue on the FHFA's behalf may have had something to
do with the suit’s success. Legal fees will reduce taxpayers’
cut, but the payoff seems worth it.
DeMarco will still have detractors. Many resent, for
instance, his refusal to slash the principal amount of Fannie
and Freddie-held mortgages that exceeded the value of homes.
With the real estate market on the rise, however, he may finally
win some applause for sticking it to the banks.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- The Federal Housing Finance Agency on July 26 said that
UBS will pay $885 million to settle a lawsuit that alleged the
bank misled Fannie Mae and Freddie Mac into buying $4.5 billion
of problem mortgage bonds. The lawsuit against UBS is the third
to settle among the 18 that FHFA filed against lenders in 2011.
Citigroup (C.N) and General Electric (GE.N) reached settlements
earlier this year, though neither disclosed terms. The lawsuits
target $200 billion worth of mortgage bonds sold to Fannie and
- Bank of America, along with Countrywide and Merrill Lynch,
both of which the bank acquired, account for more than a quarter
of the $200 billion questionable mortgages sold to the U.S.
- The FHFA became Fannie and Freddie’s conservator after the
two firms failed in 2008 due to losses on their mortgage
- FHFA press release: link.reuters.com/puw89t
- Reuters: Banks shiver as UBS swallows $885 mln US fine
Wrong target [ID:nL2N0D41H3]
- For previous columns by the author, Reuters customers can
click on [CRANE/]
(Editing by Reynolds Holding and Martin Langfield)
Keywords: BREAKINGVIEWS UBS/SETTLEMENT
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