Home Tags Posts tagged with "mortgage backed securities"

mortgage backed securities


Deutsche Bank has agreed a $7.2 billion fine over an investigation into mortgage-backed securities in the US.

The sum, which needs final approval, is far lower than the $14 billion the US authorities had asked the German bank to pay in September.

That fine had caused concerns that a failure of Deutsche Bank could pose a risk to the global financial system.

Credit Suisse also announced a similar deal, while Barclays is now under investigation too.

The sale of residential mortgage-backed securities played a significant role in the 2008 financial crisis.

Several banks in the US have been subject to investigations over allegations of giving mortgages to unqualified borrowers, then repackaging those loans as safe investments and selling the risk on to others. The inquiries related to deals done between 2005 and 2007.

Meanwhile, Credit Suisse has said it has agreed a $5.28 billion deal to settle its own dispute with US authorities over mortgage-backed securities.

Credit Suisse will pay US authorities $2.48 billion, and will also give consumers $2.8 billion in compensation over the next five years.


The US government filed two lawsuits against Bank of America relating to fraud on $850 million of mortgage-backed securities.

The Justice Department and the Securities and Exchange Commission filed parallel suits in North Carolina.

Attorney General Eric Holder said the government wanted “justice for those who have been victimized.”

Bank of America denied the charges, arguing “these were prime mortgages sold to sophisticated investors.”

The bank already hinted it expected the suits in a filing last week.

The US government filed two lawsuits against Bank of America relating to fraud on $850 million of mortgage-backed securities

The US government filed two lawsuits against Bank of America relating to fraud on $850 million of mortgage-backed securities

In the Justice Department suit, the government alleged that Bank of America “knowingly and willfully misled investors about the quality and safety of their investments” in a residential mortgage-backed security known as BOAMS 2008-A.

The security, worth around $850 million when it was issued in January 2008, eventually collapsed during the crisis as the quality of the loans contained in it soured.

This led to investor losses of more than $100m according to the complaint.

Bank of America says that the fact that the security failed was not the fault of the bank.

“We are not responsible for the housing market collapse that caused mortgage loans to default at unprecedented rates and these securities to lose value as a result,” it argued in a statement.

Bank of America has recently announced a series of settlements, including an $8.5 billion settlement with investors dealing with similar mortgage-based securities and a $1.6 billion deal with MBIA Inc, a bond insurer.

[youtube dedTCwoK6OM]


Swiss bank UBS has reached an agreement with US housing agencies to settle claims it had mis-sold mortgage investments.

UBS said it had reached an agreement in principle with the Federal Housing Finance Agency (FHFA) over the investments sold between 2004 and 2007.

In its statement, UBS also said it expected its second-quarter net profits for shareholders to total 690 million Swiss francs ($734 million).

UBS set aside a total of 865 million francs in the quarter to cover litigation.

Of that, 100 million francs is related to a deal with the UK authorities to disclose the account details of British tax evaders and hand back unpaid taxes.

The bank said that its wealth management business continued to see large inflows – totalling 10.1bn francs during the three-month period, the highest in six years.

Its US private banking business received an additional 2.7 billion francs of new client money, although 2 billion francs was withdrawn by clients from its asset management unit.

The influx of money comes despite the entire Swiss banking sector coming under scrutiny from foreign tax authorities and its own regulators.

UBS is currently under investigation from French and German authorities over allegations that it enabled tax evasion.

UBS reached an agreement in principle with the FHFA over the investments sold between 2004 and 2007

UBS reached an agreement in principle with the FHFA over the investments sold between 2004 and 2007

UBS’s board is refocusing the bank on serving wealthy clients, slimming down its investment banking and trading operations and cutting 10,000 jobs in the process.

The decision to make the investment bank subservient to its private banking business came after a string of scandals, including heavy losses on US mortgages during the financial crisis, losses incurred by the rogue London trader Kweku Adoboli, and UBS involvement in Libor-rigging.

The deal with the FHFA relates to residential mortgage-backed securities sold during the past decade’s US property bubble to federal housing agencies.

The underlying mortgages behind the investments later went bad, with many borrowers proving unable to repay their loans.

UBS is one of 18 international financial firms accused by the FHFA of mis-representing the mortgages as being better quality than they really were.

The FHFA is also representing Freddie Mac and Fannie Mae, which had to be rescued by the US government during the 2008 financial crisis.

The settlement comes after UBS and 13 other banks failed to have an appeals court intervene in the case, following what the banks claimed were “gravely prejudicial” rulings against them.

The bank’s estimated earnings were better than the 550 million – 575 million Swiss francs that analysts had been expecting, and up from 425 million francs during the same period a year ago.

Its share price rose more than 3% in early trading on Monday following the announcement.

UBS will announce its official results for the second quarter of the year on July 30.

Standard & Poor’s has announced it is to be sued by the US government over the credit ratings agency’s assessment of mortgage bonds before the financial crisis.

The civil lawsuit would focus on S&P’s high ratings in 2007 for some mortgage-backed securities that later collapsed in value, said the agency.

S&P says the case is entirely without factual or legal merit.

The suit would be the first such case over alleged wrongdoing by a ratings agency tied to the financial crisis.

S&P said the justice department had informed them of the impending civil suit, although the federal agency declined to comment.

The move follows a breakdown in talks between the justice department and S&P, the Wall Street Journal reports.

Several states are expected to join the suit, US media report.

Shares in S&P’s owner, the US publishing and media group McGraw Hill, fell 14% on Wall Street on Monday following the announcement, while those in fellow ratings agency Moody’s fell 10% – indicating the market expects that they may be next in the justice department’s sights.

S&P and other agencies have faced criticism from investors, politicians and regulators for assigning their top AAA ratings to thousands of subprime and other mortgage securities that later collapsed in value.

Such agencies are paid by the issuers of bonds and other securities for ratings, raising concern about potential conflicts of interest.

Standard & Poor's has announced it is to be sued by the US government over the credit ratings agency's assessment of mortgage bonds before the financial crisis

Standard & Poor’s has announced it is to be sued by the US government over the credit ratings agency’s assessment of mortgage bonds before the financial crisis

Grades assigned by these firms can affect a company’s ability to raise or borrow money as well as how much investors will pay for their securities.

In the case of the subprime mortgage bubble, ratings agencies including S&P were hired to assess collateralized debt obligations (CDOs) – complex financial transactions that packaged together thousands of loans to individual homebuyers.

The ratings agencies’ job was to assess the likelihood that the home loans – and therefore the CDOs – would ultimately be repaid. Their ratings enabled the investment banks which put the CDOs together to then sell them to investors around the world.

In its January 2011 report, the US Financial Crisis Inquiry Commission called the agencies “essential cogs in the wheel of financial destruction” and “key enablers of the financial meltdown”.

S&P has previously disclosed a Securities and Exchange Commission (SEC) investigation into its rating of a specific $1.6 billion CDO known as Delphinus CDO 2007-1.

Delphinus was the basis of a $127 million settlement by Mizuho Financial Group over allegations that the US unit of the company obtained false credit ratings for the CDO using millions of dollars in dummy assets.

It is unclear if Delphinus is included in the expected civil suit.

S&P has also faced lawsuits from investors, and argues its ratings constitute opinions protected by the First Amendment to the US Constitution.

The firm says it “deeply regrets” how its CDO ratings failed to anticipate mortgage market conditions as the financial crisis hit, and that it has since spent $400m to help bolster the quality of its ratings.

“Every CDO that [the department] has cited to us also independently received the same rating from another rating agency,” S&P said in a statement on Monday.

“The Department of Justice would be wrong in contending that S&P ratings were motivated by commercial considerations and not issued in good faith.”

The Federal Reserve has reiterated that the US economy is only growing slowly, and that the country’s unemployment rate “remains elevated”.

However, the Fed added that the housing market had “shown some further signs of improvement”.

The comments came as the US central bank kept interest rates on hold at between zero and 0.25%, as had been widely expected.

The Fed is also continuing with a third round of quantitative easing (QE).

Under QE a central bank pumps fresh money into the financial system to try to boost lending, and through that the wider economy.

As announced following the Fed’s September rate-setting Federal Open Market Committee meeting, it is buying $40 billion of mortgage-backed securities per month, for an open-ended period.

The Fed has previously spent $2.3 trillion over two rounds of QE.

Joseph Trevisani, chief market strategist at Worldwide Markets, said: “No change in Fed policy was anticipated and none was delivered.”