EDITOR’S COMMENT: Attorneys for homeowners should watch these investor suits carefully. Contained within them are allegations and discovery relating to the enforceability of the mortgage liens as well as the failure to properly underwrite the loans.
The fact that the SEC is going after the banks on these issues is a good thing, but not unless it is referred for criminal prosecution. If our securities markets are subject to outright criminal fraud and we don’t do anything about the criminal aspect, we are sending the wrong signal out to the rest of the world which already views our mortgage debacle as a virtual attack on the sovereignty of dozens of countries.
If we want to see our credit markets revive and our economy, we will need to make investors feel certain that the regulatory environment and law enforcement are working together to bring criminal masterminds to justice. Anything short of that will result in a slow but rising attrition to anywhere but the U.S. credit markets.
Feb 8 (Reuters) – U.S. securities regulators plan to warn several major banks that they may sue them over the sale of bonds linked to sub-prime mortgages that ignited the financial crisis in 2008, the Wall Street Journal said, citing people familiar with the matter.
The U.S. Securities and Exchange Commission (SEC) is looking at whether the banks misrepresented the poor quality of loan pools they bundled and sold to investors, the people told the Journal.
It was not clear which firms will receive the formal SEC enforcement warnings, known as “Wells notices”, the paper said.
Banks whose activities are being examined in the civil investigation include Ally Financial Inc, Bank of America Corp , Citigroup, Deutsche Bank and Goldman Sachs, the Journal said.
Ally Financial spokeswoman Gina Proia told Reuters that she could comment on the Journal report.
Representatives of the banks and SEC declined to comment, the Journal said.
None of the other parties could immediately be reached for comment by Reuters outside regular U.S. business hours.
Speaking at a news conference in January, SEC enforcement director Robert Khuzami said his agency already reviewed 25 million pages of documents on mortgage-related investigations.
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, sued 17 large banks last September over losses on about $200 billion of subprime bonds and said the underlying mortgages did not meet investors’ criteria.
