UBS has been accused of making false statements about 16 mortgage-backed securities (MBS's) that it sponsored and sold to Fannie Mae and Freddie Mac from fall 2005 through summer 2007.   The Federal Housing Finance Agency, Fannie's and Freddie's regulator, seeks to recover at least $900 million - the amount supposedly lost by the pair on these 'shaky' securities. 

Among other things, FHFA's lawsuit alleges that UBS overstated borrowers' capacity to repay loans.  Interestingly, the suit is the FHFA's first against a major investment bank in which it's seeking to recover money for Fannie and Freddie.  

The suit's main focus is the sale of private-label securities based on subprime loans, on which the mortgage giants have already lost at least 20% of their $4.5bn investment.  The securities contained loans made by now-defunct mortgage companies New Century Financial and American Home Mortgage, and IndyMac Bank, and Countrywide Home Loans which are now part of Bank of America Corp.

Fannie and Freddie's near-collapse has cost U.S. taxpayers $138 billion to date, an immense sum sum that has regulators scrambling to try to recover funds.  In 2010, the FHFA sent 64 subpoenas to issuers of mortgage-backed securities in its first push to recover some of the money lost. Also, since the beginning of 2010, Fannie and Freddie have recovered $18bn combined from lenders who directly sold them faulty loans.   [WSJournal, 7/28/11]