Dealing With the Last of the 2008 USA Mortgage Crash
Swiss bank UBS, has agreed to pay a $1.4 billion settlement connected to the sale of mortgage-backed securities.
These securities were tied to home loans in America primarily, and the U.S. Department of Justice claimed that UBS knew there were issues with the mortgages but sold them anyway before the market crash in 2008.
The 2008 Market Crash
Before the financial crisis, banks packaged and sold dodgy bundles of mortgages to investors.
Often referred to a securitisation this process is somewhat clouded in mystery. These bundles were given ratings based on their perceived quality, but the actual mortgages weren’t as good as these ratings suggested. UBS, along with other banks, were aware that the mortgages didn’t really meet the required standards, but it continued to sell them anyway.
‘lots of Americans were getting bonds for property that they really could not afford to repay’
The market crashed when people realised that lots of Americans were getting bonds for property that they really could not afford to repay and that these bonds for properties that were way over priced.
People who were renting, began to move out of some properties to cheaper places. This left landlords struggling to pay bonds and get new tenants for their over priced properties.
People who had been buying and “flipping” places for profits found they were struggling to find new buyers and had to try keep bond repayments going. Many failed and Investors realised that these bundled investments were not really as safe as they thought. As more people began to default on their bond repayments a crash ensued.
Scared investors sold quickly, which scared other investors and the whole thing came crashing down very quickly. When the big sell off occurred many people lost everything.
So, who was to blame?
After many investigations it became clear that not only had greed played a factor but many banks had realised the bundled investments were not as safe as they made them out to be. Caught out they then faced fines and punishment.
UBS $1.4 Billion Settlement
UBS has revealed that this latest settlement addresses matters dating back to the 2 years leading up to the 2008 financial crisis.
Interestingly, the settlement amount is very close to the value of the mortgages that UBS originated between 2005 and 2007. During those years, UBS originated about $1.5 billion in residential mortgages.
This settlement marks the end of a series of cases brought by federal prosecutors against major banks for their role in selling these securities with misleading information. In total, the US Justice Department has recovered $36 billion from various financial institutions in all these cases.
‘the US Justice Department has recovered $36 billion from various financial institutions in all these cases’
The US Justice Department has now reached settlements with 18 financial institutions for similar mortgage-backed security issues. These institutions include the Bank of America, Citigroup, Goldman Sachs, JPMorgan, and Wells Fargo.
Credit Suisse, another Swiss bank now owned by UBS, settled with the Justice Department over misconduct related to similar offerings.