|  | | 2007 News and Press Releases | | |
HEADLINE NEWS:
Wall Street Firms Subpoenaed in Subprime Inquiry
Jenny Anderson
New York Times. December 5, 2007
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EXCERPT: Attorney General Andrew Cuomo of New York has subpoenaed major Wall Street firms including Merrill Lynch, Morgan Stanley and Deutsche Bank, seeking information about the business of packaging and selling subprime mortgages, according to people briefed on the subpoenas. The subpoenas, sent out in late summer, are part of a wide review of the mortgage industry by Cuomo's office into the mortgage business. Wall Street played a major role in the boom in lending to buyers with weak credit records. It extended credit to mortgage originators to allow them to offer more mortgages, bought companies that originate and service mortgages and, perhaps most important, packaged the mortgages into securities to sell to investors. By selling those securities, they were able to retain less risk and originate more loans; investors wanted to buy the securities because they had very high interest rates in an environment where general interest rates were low. The attorney general is interested in how the securitization business worked and what level of due diligence Wall Street banks did on the mortgages that they bought to resell, including who the securities were ultimately sold to and with what kinds of disclosures. The office is expected to look at deals that have exhibited high default rates, according to people briefed on the subpoenas. Bear Stearns and Lehman Brothers were also sent the subpoenas. Goldman Sachs was not. Representatives from all the firms declined to comment, and Cuomo's office did not return a call requesting comment. Cuomo recently subpoenaed Freddie Mac and Fannie Mae as part of a broad inquiry into what he called "widespread collusion" between real estate appraisers and lenders, including Washington Mutual, to inflate home prices. He filed suit against First American, alleging it had artificially inflated appraisals to win Washington Mutual's business. |
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