UBS Liability in RMBS Case Might be Reduced

There was some good news for UBS AG in the ongoing litigation connected to its pre-recession sale of residential mortgage-backed securities (RMBS).

According to a Reuters report, U.S. District Judge Kevin Castel issued a 239-page decision that the company could possibly avoid liability on some of the $2.1 billion in losses tied to its RMBS sales in 2006 and 2007. In his decision, the judge stated that U.S. Bancorp, which served as trustee for three trusts issuing the securities, failed to show that UBS was intentionally negligent in regard to the problems within many of the loans.

"The trusts have not proved that UBS took deliberate actions to avoid knowledge that widespread breaches had occurred throughout the loans held by the trusts, thereby triggering UBS's repurchase obligations," Castel wrote.

However, that does not exonerate UBS, and Castel noted that UBS may eventually need to either repurchase or pay damages on 13 out of 20 loans that he examined. The judge also called for the hiring of a "lead master" to review the thousands of loans underlying the UBS securities, which he added would help in determining which damages might be warranted in this case.

Representatives for both UBS and U.S. Bancorp did not issue comments on this ruling.