Credit Suisse Group Inc. will pay $4.5 million and Bank of America Corp. (BAC)’s Merrill Lynch unit will pay $3 million to resolve Financial Industry Regulatory Authority claims that they misrepresented delinquency data in issuing residential subprime mortgage securitizations.
Credit Suisse Securities failed to inform clients of misrepresentations on 21 subprime RMBS it underwrote and sold in 2006, Washington-based Finra said in a statement today. In a separate case, Merrill Lynch negligently misrepresented delinquency rates for 61 subprime RMBS, though it corrected the errors on its website in June 2007, Finra said.
“Firms must provide accurate information about the products they offer,” Finra enforcement chief Brad Bennett said in the statement. “Credit Suisse and Merrill Lynch failed to monitor and supervise the reporting of historical delinquency rates, depriving investors of information essential to assessing the profitability of mortgage-backed investments.”
The two companies agreed to resolve the claims without admitting or denying wrongdoing.
Issuers of subprime RMBS are required to disclose historical performance information for past securitizations that contain mortgage loans similar to those being offered to investors, Finra said. Because there are different standards for calculating delinquencies, issuers are required to disclose the specific method they used, the brokerage regulator said.
“We are pleased to resolve this matter, which pre-dated Bank of America’s acquisition of Merrill Lynch,” said Bill Halldin, a spokesman for the Charlotte, North Carolina-based lender, which bought the brokerage in 2009. “Merrill Lynch identified this problem and corrected it by September 2007.”
Steven Vames, a spokesman for Credit Suisse, declined to comment on the fine.
“Credit Suisse failed to take adequate steps to review and correct the inaccurate static pool information,” according to the agreement the firm signed with Finra.
For six of the securitizations from Credit Suisse and eight from Merrill Lynch, Finra said the errors “were significant enough” to affect investor assessments.
The agreement between Finra and Zurich-based Credit Suisse said the bank’s outside servicer of the 21 securitizations “had provided inaccurate delinquency data” between January and September of 2006. The data was “variously underreporting and overreporting delinquencies for different securitizations within this period,” according to the letter, which was posted on Finra’s website.
Bank of America’s agreement with Finra also said that the Merrill Lynch errors both understated and overstated delinquencies in various mortgage pools.
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