It's official: UBS AG will pay the Federal Housing Finance Agency a hefty $885 million for allegedly conning Fannie Mae and Freddie Mac into buying more than $5 billion in dubious residential mortgage-backed securities. The FHFA announced the deal late Thursday, following UBS's disclosure on July 22 that it had agreed in principle to a settlement.

(Click here to read FHFA's press release and the settlement agreement. Our story on UBS's earlier disclosure, with additional background on the litigation, is here. UBS said it continues to “vigorously deny” the FHFA’s claims.)

The UBS deal removes a key defendant from the ongoing litigation, which the FHFA and its lawyers at Quinn Emanuel Urquhart & Sullivan and Kasowitz Benson Torres & Friedman unleashed against 18 banks in 2011. UBS's exposure wasn't nearly as great as some other remaining defendants, like JPMorgan Chase & Co. and Bank of America's Countrywide Financial. But U.S. District Judge Denise Cote in Manhattan chose the FHFA's case against UBS as a bellwether on key motions to dismiss, and UBS's lawyers at Skadden, Arps, Slate, Meagher & Flom took the lead in arguing the crucial threshold question of whether most of the FHFA's claims are time-barred.

As we've reported (here and here), both Cote and the U.S. Court of Appeals for the Second Circuit have smacked down the banks timeliness argument. On July 19—just three days before UBS gave up the fight—the Second Circuit also rejected a joint mandamus petition in which the banks complained that Cote's rulings were unfairly aimed at coercing settlements.

The UBS deal follows previous FHFA settlements with Citigroup Inc. and GE Capital. Under the terms of the UBS settlement, the bank will pay about $415 million to Fannie Mae and $470 million to Freddie Mac to resolve claims related to securities that UBS sold or sponsored between 2004 and 2007. UBS also agreed not to assist in the defense of the banks still fighting the FHFA's claims, including by filing or contributing to U.S. Supreme Court petitions or briefs challenging the banks' Second Circuit loss in April.

Jay Kasner and Scott Musoff at Skadden led UBS's defense. We left a message with Kasner on Friday but didn't immediately hear back.