New York Times
ALBANY, N.Y. - Eric T. Schneiderman, the New York attorney general, has requested information and documents in recent weeks from three major Wall Street banks about their mortgage securities operations during the credit boom, indicating the existence of a new investigation into practices that contributed to billions in mortgage losses.
According to the New York Times, officials in Schneiderman's office have also requested meetings with representatives of Bank of America, Goldman Sachs and Morgan Stanley. The inquiry appears to be quite broad, with the attorney general's requests for information covering many aspects of the banks' loan pooling operations, the Times reported. They bundled thousands of home loans into securities that were then sold to investors such as pension funds, mutual funds and insurance companies.
Experts in the area have since said that banks had very little of their own money invested in those mortgages. That led banks to take greater risks, which contributed to the fiscal crisis.
It is unclear which parts of the byzantine securitization process Schneiderman is focusing on. His spokesman said the attorney general would not comment on the investigation, which is in its early stages.
Several civil suits have been filed by federal and state regulators since the financial crisis erupted in 2008, some of which have generated settlements and fines, most prominently a $550 million deal between Goldman Sachs and the Securities and Exchange Commission.
But even more questions have been raised in private lawsuits filed against the banks by investors and others who say they were victimized by questionable securitization practices. Some litigants have contended, for example, that the banks dumped loans they knew to be troubled into securities and then misled investors about the quality of those underlying mortgages when selling the investments.
The possibility has also been raised that the banks did not disclose to mortgage insurers the risks in the instruments they were agreeing to insure against default. Another potential area of inquiry: the billions of dollars in credit extended by Wall Street to aggressive mortgage lenders that allowed them to continue making questionable loans for far longer than they otherwise could have.
"Part of what prosecutors have the advantage of doing right now, here as elsewhere, is watching the civil suits play out as different parties fight over who bears the loss," said Daniel C. Richman, a professor of law at Columbia University. "That's a very productive source of information."
Officials at Bank of America and Goldman Sachs declined to comment about the investigation; Morgan Stanley officials did not respond to a request for comment.
Information from the Associated Press was used in this report