Sun, Dec 19, 2010 - Page 11 News List

SEC expanding its probe of mortgage industry: sources


US securities regulators have broadened their inquiry into the mortgage industry, asking big banks about the early stages of securitizing home loans, two sources familiar with the probe said.

The Securities and Exchange Commission (SEC) launched the new phase of its investigation by sending out a fresh round of subpoenas last week to big banks including Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, Goldman Sachs Group Inc and Wells Fargo & Co, the sources said.

Months ago, the SEC began looking into the banks’ foreclosure practices following allegations that mortgage servicers were using shoddy paperwork to evict delinquent borrowers from their homes.

Now the SEC is looking at how the lenders packaged up mortgages for sale to investors, said the sources, who requested anonymity because the probe is not public.

Questions from the SEC include information about the role of so-called “master servicers” — specialized firms that oversee the selection and maintenance of the large pool of home loans that go into every mortgage-backed bond.

In many cases, Wall Street banks that underwrite mortgage-backed securities either own their own master servicing firms or are closely aligned with one.

The US Justice Department, banking regulators and the attorneys general in all 50 US states are also probing potential wrongdoing.

The states of Arizona and Nevada filed lawsuits against Bank of America (BOA) on Friday accusing it of defrauding cash-strapped homeowners amid the global economic downturn.

The legal action was triggered after hundreds of complaints and a year-long investigation centered on the bank’s loan modification and foreclosure practices, Arizona’s Attorney General Terry Goddard said.

“Bank of America has been the slowest of all the servicers to ramp up loss mitigation efforts in response to the housing crisis,” he said, announcing the lawsuit filed in the Maricopa County Superior Court.

“It has shown callous disregard for the devastating effects its servicing practices have had on individual borrowers and on the economy as a whole,” he said.

Specifically he accused Bank of America, as the biggest US residential mortgage loan servicer, of breaching state consumer fraud law as well as an agreement made in March last year between Arizona and BOA-owned lender Countrywide.

In the agreement, called a “consent judgment,” Countrywide agreed to develop and implement a loan modification program for some of its former borrowers in the southwestern US state.

Nevada Attorney General Catherine Cortez Masto also announced legal action against Bank of America “for engaging in deceptive trade practices against Nevada homeowners.”

A Bank of America spokesman lamented the lawsuits, which he said could complicate efforts to reach an agreement with a number of US states, including Arizona and Nevada.

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