Prosecutors in New York and Connecticut have opened a probe to see if the Wall Street banks have held back critical information on subprime loans and have failed to disclose sufficient data on mortgage lending practices.
"The inquiry, which was opened last summer by New York’s attorney general, Andrew M. Cuomo, centers on how the banks bundled billions of dollars of exception loans and other subprime debt into complex mortgage investments, according to people with knowledge of the matter. Charges could be filed in coming weeks.
"In an interview Thursday, Connecticut’s attorney general, Richard Blumenthal, said his office was conducting a similar review and was cooperating with New York prosecutors. The Securities and Exchange Commission is also investigating." Reports NY Times
Bloomberg reports that "defaults on subprime loans have led to bankruptcies of lenders of such mortgages, such as New Century Financial Corp., roiling stock markets. Banks that packaged subprime loans as investments, such as Citigroup Inc. and Bank of America Corp., may have to write down billions of dollars when they report their next earnings, analysts said. New York and Connecticut are among at least a handful of states investigating the mortgage industry as foreclosures have risen nationwide. Blumenthal said his office was cooperating with New York Attorney General Andrew Cuomo "as we always do when our investigations have similar interests."
In a news published by NA/RE discussing the possible subprime failures by Wall Street Banks it is said that as the worries of recession kicks off due to the dropping on house prices, state prosecutors are puzzled over the way investment banks have handled exception loans.
"It is not clear exactly how much of the $1 trillion subprime mortgage market includes exception loans. However some industry officials say such loans made up a quarter to a half of the cases they saw."
How Wall Street banks sold complex mortgage investments is also presently under S.E.C. examination. The commission has about three dozen current investigations in the area of mortgage investment selling practices, said Walter G. Ricciardi, the deputy director of enforcement.
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