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 Lawyers for UBS made their closing arguments in the non-jury trial
in Manhattan federal court in a lawsuit being pursued by U.S.
Bancorp on behalf of three trusts established for mortgage-backed
securities.
Sean Baldwin, the trusts' lawyer, said UBS turned a blind eye to
defects in the mortgages it acquired and packaged into bonds to be
sold to investors, relying on vendors hired to do due diligence on
the loans whom it considered "negligent or lazy."
"It was a business decision, but it should be held accountable for
that business decision," he said.
But Robert Fumerton, a lawyer for UBS, said while the trusts
contended thousands of loans were defective under the governing
contracts, they had failed to establish those defects were material.
"Not all breaches of the guidelines and not all breaches of the
representations and warranties are material," Fumerton said.
The case, being heard by U.S. District Judge Kevin Castel, is one of
a handful to go to trial in recent years over losses incurred on
mortgage-backed securities, the financial product at the center of
the 2008 financial crisis.
The lawsuit follows a related action against UBS by bond insurer
Assured Guaranty Ltd over the same mortgage-backed securities. UBS
in 2013 agreed to pay $358 million to Assured, which was represented
by the same lawyers as the three trusts.
The lawsuit centered on thousands of loans that UBS acquired that
were originated by lenders including Countrywide Financial Corp,
which it then pooled into three trusts that issued securities
entitling investors to payments made by borrowers.
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Out of 9,411 loans at issue, 7,440 had realized losses after being liquidated or
modified, and that another 768 were over 60 days delinquent, Baldwin said.
Many of those loans were materially defective and were packaged into the
securities despite "red flags" of potential borrower fraud, he said. He pointed
to two loans that claimed to be owner-occupied despite being issued to a single
person.
"The loans should not have been approved, and the breaches could not have been
compensated for," he said.
At the trial's start, Baldwin said $2.1 billion in losses resulted, for which
the trusts are seeking to hold UBS liable.
The case is Mastr Adjustable Rate Mortgages Trust 2006-OA2 et al v. UBS Real
Estate Securities Inc, U.S. District Court, Southern District of New York, No.
12-07322.
(Reporting by Nate Raymond in New York; Editing by Cynthia Osterman)
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