New York Attorney General Eric Schneiderman — currently leading investigations into banks such as JPMorgan Chase & Co. (NYSE:JPM), UBS AG (NYSE:UBS), and Deutsche Bank AG (NYSE:DB) for their mortgage securitization practices — has widened his scope to include four bond insurers: Ambac Financial Group (PINK:ABKFQ), MBIA Inc. (NYSE:MBI), Syncora Holdings Ltd. (PINK:SYCRF), and Assured Guaranty Ltd. (NYSE:AGO).
According to an anonymous friend of the media, Schneiderman is investigating claims that were paid out during and after the economic crisis, and also looking at any litigations or settlements entered into by the banks during that time. Goldman Sachs Group Inc. (NYSE:GS), Bank of American Corp. (NYSE:BAC), and Morgan Stanley (NYSE:MS), our friend tells us, also fall under the scope of Schneiderman’s investigation.
NY AG spokeswoman Lauren Passalacqua refused to comment on the state of the investigation, as did spokesperson for the New York-based Ambac, both the Zurich- and New York-based UBS, and the Frankfurt-based Deutsche Bank. However, Ashweeta Durani, spokeswoman for Hamilton-Bermuda-based Assured Guaranty commented, “We support the attorney general with their investigation which will hopefully accelerate the resolution of mortgage origination, securitization and servicing problems,” but would not say whether Assured Guaranty had received a subpoena. However, we know that New York-based Syncora’s subsidiary, Syncora Guarantee Inc., did receive a subpoena from the AG requesting that they “provide certain information” about mortgage-backed securities lawsuits and settlements, repurchase requests, and regulatory inquiries, according to spokesman Michael Corbally.
MBIA spokesman Kevin Brown confirms that his company has received a subpoena relating to the allegations in their various residential mortgage-backed securities — RMBS — complaints. MBIA is currently suing banks for having breached representations and warranties on loans pooled into those securities.
The New York Attorney General isn’t the only one looking into the bank practices that are largely to blame for the current economic climate. All 50 states’ attorneys general are, along with federal regulators, looking into the way financial firms handled home loans. California AG Kamala Harris set up a task force to investigate mortgage fraud, looking 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, predatory lending, loan modification, and foreclosure scams. “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.
To get an idea of what results we might expect from these investigations, we need only look to the results of recent mortgage-related suits and settlements. Last year, Goldman Sachs paid out $550 million to settle civil fraud charges brought by the SEC over the 2007 mortgage-linked investment, Abacus. MBIA has already paid out $19 billion in guarantees to 5 financial institutions to resolve obligations involving toxic debt securities, paying them to tear up contracts insuring against losses on corporate, residential, and commercial mortgage bonds and derivatives. And Bank of America signed consent decrees with authorities to improve foreclosure methods, restructure procedures for loan modifications and refinancing, and pay back homeowners for losses incurred from mishandled home seizures. All 3 of these institutions are still under investigation for other violations.