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The Honolulu Advertiser
Posted on: Tuesday, March 20, 2007

Subprime mortgage lenders being probed

By Marcy Gordon
Associated Press

WASHINGTON — The Securities and Exchange Commission is investigating a number of companies that operate in the troubled market for subprime mortgage loans, the agency's top enforcement official said yesterday.

It has been known that the SEC was examining accounting practices at New Century Financial Corp., the nation's second-largest maker of subprime mortgages — higher-priced home loans for people with tarnished credit or low incomes.

But comments by SEC Enforcement Director Linda Thomsen yesterday were the first public acknowledgment that the agency was involved in a broad examination of the subprime sector within the mortgage industry.

"We're looking at subprime," Thomsen told reporters following an address to an investment conference. "As with anything, we're going to look at all the actors and their roles."

She declined to provide further details. The SEC as a rule does not comment publicly on current investigations.

Lenders are among a web of players that take part in the subprime mortgage market, including mortgage brokers, property appraisers and financial institutions that buy loans in bulk and bundle them into securities for sale to investors.

The role of major Wall Street investment firms in the subprime market debacle is under scrutiny. In Massachusetts, the state's top securities regulator said last week that he had issued subpoenas to two major firms — UBS Securities LLC and Bear Stearns & Co. Inc. — as part of an investigation into whether their analysts' research ignored subprime lenders' mounting financial problems.

The Bush administration's housing secretary, Alphonso Jackson, disclosed last week that the government was preparing to punish some subprime mortgage lenders that have been under investigation for discriminatory practices. He did not name the companies. HUD's Office of Fair Housing has brought several cases against mortgage lenders and insurers for predatory practices, and those enforcement efforts are continuing, the department said.

There has been an alarming spike in foreclosures, especially among homeowners who took out subprime loans. In recent weeks, lawmakers and regulators have been voicing concern that many people could lose their homes as mortgage delinquencies mount and distress grows in the market for subprime mortgages.

Also, lawmakers have denounced what they say are abusive practices by some mortgage lenders that target the poor, minorities and the elderly. Senior Democrats are drafting legislation intended to curb predatory lending — which occurs, for example, when lenders pressure home borrowers into high-interest loans that they may not be able to repay.

Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, announced yesterday that he had asked the chief executives of five of the biggest players in the subprime mortgage market to testify at a hearing on Thursday. In addition to New Century, they are: HSBC Holdings Corp.; Countrywide Financial Corp.; WMC Mortgage, which is owned by General Electric Co.; and First Franklin Financial Corp., part of Merrill Lynch & Co.

"At the very least, homeowners facing foreclosure deserve to know what factors contributed to their dire financial straits, and what steps are needed to fix this pressing problem," Dodd said in a statement.

Anxiety that a blowup of subprime mortgage lenders could spill over into the broader economy has roiled the financial markets in recent weeks and played a major role in the swoon on Wall Street that pushed the Dow Jones average to its lowest levels in more than four years.