UPDATE 3-U.S. subpoenas financial firms in expanded probe
* Holder does not name firms subpoenaed, says more to follow
* New working group to probe repackaging of home loans
* Mortgage settlement deal will not conflict, Donovan says
* Skeptics say working group politically motivated
(Adds comment from New York (Frankfurt: A0DKRK – news) attorney general)
WASHINGTON, Jan 27 (Reuters) – The U.S. Justice
Department issued civil subpoenas to 11 financial institutions
as part of a new effort to investigate misconduct in the
packaging and sale of home loans to investors, Attorney General
Eric Holder said on Friday.
Holder declined to provide specifics, including the names of
the firms.
“We are wasting no time in aggressively pursuing any and all
leads,” Holder said at a news conference announcing details of a
new working group to investigate misconduct in the residential
mortgage-backed securities (RMBS) market, “you can expect more
to follow.”
President Barack Obama said he directed Holder to create the
new unit in his State of the Union speech late Tuesday, saying
it was needed to “help turn the page on an era of recklessness.”
On Friday a slew of federal and state officials appeared at
the news conference to provide details about the new group.
Housed within an earlier financial fraud task force that
Obama created in 2009, it is expected to be staffed with around
50 attorneys, analysts and agents, officials said.
Some skeptics have questioned whether the new group is
largely a political move because the other fraud task force
already exists.
Also, the Obama administration has received heat from
left-leaning activist groups that believe a separate effort to
investigate misconduct in processing foreclosures and servicing
home loans may not be rigorous enough to extract a meaningful
settlement.
In exchange for providing up to $25 billion in housing
relief, much in the form of cutting mortgage debt for distressed
borrowers, the top U.S. banks are expected to put behind them
government lawsuits about lending and servicing abuses – but not
securitization claims.
The banks involved in the discussions include Bank of
America, Wells Fargo (Dusseldorf: NWT.DU – news) Co, JPMorgan Chase (Hanover: 850628 – news) Co
, Citigroup (NYSE: C – news) and Ally Financial Inc.
Those talks have dragged into their second year as some
states, including California and New York, criticized the
direction of the negotiations and said the proposed settlement
would release the banks from too many claims.
The deal appears to be getting closer, with last-ditch
efforts to lure the hold-out states to join.
California has said it still has reservations about the
deal, but California Attorney General Kamala Harris has met in
recent weeks with federal officials in Washington to discuss her
concerns about the settlement, people familiar with the matter
said.
The attorney general in New York, Eric Schneiderman, was
named as a co-chair of the new working group, prompting
speculation that the position was partly aimed at persuading him
to join the settlement.
In an interview with Reuters, Schneiderman said: “The
releases have become narrow enough so that I’m confident a full
investigation can go forward.” Asked if he was signing on, he
said, “Not yet,” because “other issues” are still outstanding.
MULTIPLE EFFORTS
At the news conference, U.S. Housing and Urban Development
Secretary Shaun Donovan also said that the multistate deal will
not prevent the working group from pursuing its own claims about
the securitization of home loans.
“We would not be standing here today if we weren’t
absolutely confident that the releases that are being
contemplated were quite narrow, focused on the conduct that was
actually investigated,” Donovan said.
“There will be concrete actions taken in the next few weeks
to confirm we’re serious,” Schneiderman added in the interview.
Exactly what the new group will tackle is unclear, since the
construction and sale of mortgage securities is already the
subject of massive government and private lawsuits.
“The simple fact is that this is an election year, and
politics will inevitably play a role in every aspect of what is
at its core a superfluous investigation,” said Richard Gottlieb,
who heads the financial industry group at the law firm Dykema.
“Others have already done the leg work, the lawsuits have
already been filed, and the courts will already be deciding
these issues,” said Gottlieb.
The Federal Housing Finance Agency, for example, which
oversees Fannie Mae (Dusseldorf: 929694.DU – news) and Freddie Mac (Dusseldorf: FHL.DU – news) , sued 17
large banks last September over losses on about $200 billion of
subprime bonds and said the underlying mortgages did not meet
investors’ criteria.
Speaking at the news conference, U.S. Securities and
Exchange Commission enforcement director Robert Khuzami said his
agency has already reviewed 25 million pages of documents on
related investigations.
“To be clear, investigations into RMBS offerings have been
ongoing at the SEC,” Khuzami said.
Holder said the Justice Department had discussed the
subpoenas with the SEC, and said the new requests do not
duplicate earlier efforts from the SEC.
He also responded to criticism that federal enforcers have
brought few marquee cases in the aftermath of the financial
crisis. Holder said the department has brought around 2,100
mortgage-related cases.
“The notion that there has been inactivity over the course
of the last three years is belied by a troublesome little thing
called facts,” Holder said.
Several top banks, including Bank of America (NYSE: IKJ – news) , Citigroup,
JPMorgan, RBS Americas and Deutsche Bank (Xetra: 514000 – news) ,
declined to comment when contacted by Reuters about the new
working group’s efforts.
(Reporting By Aruna Viswanatha and Jim Vicini in Washington,
D.C. and Karen Freifeld in New York; Editing by Tim Dobbyn and
Matthew Lewis)
Article source: http://uk.finance.yahoo.com/news/3-u-subpoenas-financial-firms-223218314.html
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