Mortgage-backed securities were rotten at their very core!
Alison Frankel-
We’ve known since last February that the Securities and Exchange Commission is investigating the securitization process in which tens of thousands of sometimes dubious mortgage loans were bundled into highly rated securities. But aside from some boilerplate disclosures by the banks that received SEC subpoenas in February and a complaint the SEC filed in April against the relatively fringe MBS player Sand Canyon, there have been precious few public hints about the commission’s investigation of mortgage-backed securities.
With that background, a show-cause motion the SEC filed Monday in federal court in Los Angeles against R.R. Donnelly is worth paying attention to. Donnelly, which prepared due diligence reports for the investment bank underwriters on at least 17 securitizations by Residential Capital (the now bankrupt mortgage arm of Ally Financial), doesn’t appear to be a direct target of the SEC investigation. But the show-cause filing discloses that the SEC is digging into the loan-by-loan nitty-gritty of ResCap’s securitizations. If the commission is doing the same deep investigation of other mortgage-backed offerings, I have to credit the SEC: It took too long for the regulators to jump into the MBS mess, but the Donnelly filing suggests that they’re engaged in a thorough probe. (And I’m not just saying that because I’m in the SEC’s dog house.)
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image: pxleyes.com
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