JPMorgan, UBS, Deutsche Bank Said to Face N.Y. Mortgage Probe

New York Attorney General Eric Schneiderman
New York Attorney General Eric Schneiderman. Photographer: Michael Nagle/Getty Images

JPMorgan Chase & Co., UBS AG and Deutsche Bank AG are being investigated as part of New York Attorney General Eric Schneiderman’s expanded probe of mortgage securitization, according to a person familiar with the matter.

Four bond insurers also were subpoenaed: Ambac Financial Group Inc., MBIA Inc., Syncora Holdings Ltd. and Assured Guaranty Ltd., according to the person, who couldn’t be identified because the probe isn’t public.

Schneiderman is seeking information on claims paid out during and after the economic crisis and any information or documents related to litigation or settlements with the banks, according to the person. The expanded investigation was reported earlier by the Wall Street Journal.

Goldman Sachs Group Inc., Bank of America Corp. and Morgan Stanley were already part of the probe, the person said earlier this month. Schneiderman, who took office in January, is examining mortgage practices and the packaging and sale of loans to investors, according to the person.

Lauren Passalacqua, a spokeswoman for the New York attorney general, declined to comment yesterday. Michael Fitzgerald, a spokesman for New York-based Ambac, Torie von Alt, a spokeswoman for Zurich-based UBS, Tom Kelly, a spokesman for New York-based UBS and Renee Calabro, a spokeswoman for Frankfurt-based Deutsche Bank, declined to comment yesterday.

Royal Bank of Scotland Group Plc is also one of the companies being investigated by the attorney general, the Financial Times reported. Pholida Phengsomphone, a spokeswoman for the Edinburgh-based bank in the U.S., didn’t immediately return a call seeking comment after regular business hours yesterday.

‘Accelerate’ Resolution

“We support the attorney general with their investigation which will hopefully accelerate the resolution of mortgage origination, securitization and servicing problems,” Ashweeta Durani, a spokeswoman for Hamilton-Bermuda-based Assured Guaranty, said in an e-mailed statement. “We prefer not to confirm whether or not we have received a subpoena.”

New York-based Syncora’s Syncora Guarantee Inc. subsidiary received a subpoena from the New York attorney general “to provide certain information” about mortgage-backed securities lawsuits and settlements, repurchase requests and regulatory inquiries, Syncora spokesman Michael Corbally said in an e-mail. He declined to comment further.

Kevin Brown, a spokesman for Armonk, New York-based MBIA, confirmed that the company has received a subpoena and that “the information sought in the subpoena relates to the allegations in our various RMBS complaints.” RMBS refers to residential mortgage-backed securities. MBIA is suing banks for allegedly breaching representations and warranties on loans that are pooled into those securities.

50-State Probe

Federal regulators and all 50 state attorneys general are scrutinizing how the biggest U.S. financial firms handle home loans. Last month, as states coordinated settlement talks with banks over foreclosure practices, Schneiderman said that any joint accord shouldn’t preclude individual states, such as New York, from continuing their own inquiries.

California Attorney General Kamala Harris set up a task force to investigate mortgage fraud, her office said yesterday in a statement. The group, made up of 25 attorneys and investigators, will work in three teams: consumer enforcement, criminal enforcement and corporate fraud.

The task force’s work will include investigations into the origination of mortgage loans, the marketing of mortgage-backed securities, and false or fraudulent claims made to the state with respect to subprime mortgages, according to the statement. It will also target predatory lending as well as loan modification and foreclosure scams.

‘Safeguard the Homeowner’

“We will work to safeguard the homeowner at every step of the process -- from origination of a loan to its securitization, and we will prosecute to the fullest extent of the law those who take advantage of trusting California families,” Harris said in the statement.

In April, Bank of America was among 14 of the largest U.S. mortgage servicers that signed consent decrees with authorities including the Federal Reserve to improve foreclosure methods. The firms promised to conduct reviews, overhaul procedures for loan modifications and refinancing and pay back homeowners for losses from home seizures that were mishandled.

Last July, Goldman Sachs paid $550 million to settle civil fraud charges brought by the Securities and Exchange Commission over the 2007 sale of a mortgage-linked investment called Abacus. The firm said it made a “mistake” by failing to disclose to investors that a hedge fund was involved both in structuring the investment and planning to bet against it.

One-Time Payment

MBIA, the company that backed some of Wall Street’s most toxic debt securities, settled $19 billion in guarantees with five financial institutions since September, resolving the obligations with a one-time payment.

Its MBIA Insurance Corp. unit paid the firms to tear up contracts insuring against losses on corporate, residential and commercial-mortgage bonds and derivatives, the company said in a statement that didn’t disclose the settlement amounts. The deals terminated guarantees on $15.7 billion of debt in the fourth quarter and $3.3 billion during the first two months of 2011, the company said.

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