Bloomberg News

Assured Guaranty Municipal Sues UBS Over Mortgage Securities

February 03, 2012

(Updates with comment from UBS in fifth paragraph.)

Feb. 2 (Bloomberg) -- Assured Guaranty Municipal Corp. sued a UBS AG unit for breach of contract, accusing the company of failing to meet obligations related to the pooling of residential mortgage-backed securities.

Assured Guaranty, a New York-based municipal bond insurer, filed the suit today in New York State Supreme Court in Manhattan. It accuses Wilmington, Delaware-based UBS Real Estate Securities Inc. of failing to abide by obligations under pooling and servicing agreements related to residential mortgage-backed securities sold in three offerings in 2006 and 2007.

“UBS Real Estate assembled these securitizations from thousands of residential mortgage loans and, as an inducement to investors and insurers, represented, among other things, that those mortgage loans met specified quality control standards and were underwritten according to applicable guidelines,” the bond insurer said in its complaint. “UBS Real Estate’s representations were false, and, as a result, Assured has sustained and will continue to sustain substantial damages.”

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

‘Wrong’ Position

Assured Guaranty Municipal’s position is “wrong” and UBS intends to show that in court, Torie Von Alt, a New York-based spokeswoman for Switzerland’s biggest bank, said in an e-mail.

“Assured is a sophisticated market participant and understood the risks it was underwriting when it agreed to insure approximately $1.5 billion in RMBS backed by high-risk mortgages,” Von Alt said. “Now that it has had to pay claims under the policies it wrote, Assured is attempting to shift responsibility to UBS through indiscriminate loan repurchases and this lawsuit.”

The case is Assured Guaranty Municipal Corp. v. UBS Real Estate Securities Inc., 650327/2012, New York State Supreme Court (Manhattan).

--Editors: Fred Strasser, Stephen Farr

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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