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SEC Probing ResCap for Possible Mortgage Fraud

reuters.comAugust 28, 2012

By Aruna Viswanatha and Rick Rothacker

The U.S. Securities and Exchange Commission is investigating Ally Financial mortgage unit Residential Capital for possible misconduct in its loan origination and underwriting practices.

The SEC disclosed in court documents that it had issued a formal order of investigation on February 22 to probe possible fraud in the offer and sale of mortgage-backed securities by ResCap.

The disclosure provides a clear sign that the SEC is still making new pushes on inquiries, nearly four years after the peak of the financial crisis, even as other cases are being wrapped up.

Earlier this month, for example, Goldman Sachs said the SEC had closed an investigation into a $1.3 billion subprime mortgage deal without taking action.

The SEC disclosed the ResCap inquiry in a court request late Monday to force R.R. Donnelley & Sons to turn over certain due diligence records the company prepared for investment banks that underwrote the ResCap securitizations under investigation.

The agency said it needed the reports to determine whether ResCap made "material misrepresentations or omissions about the mortgage loan pools that backed the securitizations under investigation."

ResCap filed for bankruptcy in May to shed liability for mortgage-related claims that were weighing on Ally, the auto lender which is still 74-percent owned by the U.S. government after a series of bailouts during the financial crisis.

Last year Ally said it had received subpoenas from the SEC and the Justice Department related to mortgage practices. The SEC asked for materials provided to investors in mortgage securitization transactions, among other documents, Ally said.

The Justice Department, Ally said, issued a broad request for information "in connection with its investigation of potential fraud related to the origination and/or underwriting of mortgage loans."

It is unclear if the newly disclosed SEC investigation is related to the previous inquiries.

Representatives of Ally and ResCap declined to comment. An R.R. Donnelley representative did not respond to a request for comment.

Ally said in its latest quarterly earnings report it faces other mortgage-backed securities litigation, including lawsuits from the Federal Deposit Insurance Corporation and the Federal Housing Finance Agency.


(Reporting by Aruna Viswanatha in Washington and Rick Rothacker in Charlotte, North Carolina; Editing by Kenneth Barry)


Back to August 2012 Archive

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