The settlement with the New York Attorney General resolves allegations UBS sold loan securities that were of dodgy quality but packaged as if they were low-risk.
The agreement is the latest in a long line of settlements in which a big bank has agreed to cash payouts to move past a regulatory crackdown after mass defaults on subprime loans sparked the 2008 financial crisis.
"Years later, New Yorkers are still recovering from the housing crash, as communities grapple with the effects of plummeting home values, vacant properties, and an affordable housing crisis," said New York Attorney General Eric Schneiderman in a news release.
"Today's settlement marks another key step forward as New Yorkers rebuild their lives and communities."
The agreement includes a $41 million cash payment to New York state and $189 million in customer relief for New York homeowners.
UBS is the seventh large financial institution to settle with Schneiderman, who said the agreements have yielded $3.9 billion in cash and consumer relief for New York since the housing bust.