INTERVIEW-Ohio Mortgage Market Probe Gains Steam
Fri Dec 7, 2007 6:02pm EST
By Joseph A. Giannone
NEW YORK (Reuters) - A few months into his investigation into the subprime mortgage industry, Ohio Attorney General Marc Dann sees early signs Wall Street underwriters were not just participants in a mortgage boom- turned-bust, but potentially its key leaders.
Prompted by a rash of homeowner defaults and foreclosures rocking Ohio communities, Dann this summer launched an investigation that questions whether mortgage lenders, investment banks and rating agencies created a system that sold homes and loans to families who could not afford them.
Email and other evidence gathered in recent months is raising "disturbing" questions about the role of Wall Street.
"I've gone from saying, 'They must have known,' to it's possible the investment banks were directive of the mortgage companies who were directive of mortgage brokers," Dann told Reuters on Friday.
Queries have been sent to at least 13 companies so far. Ohio is starting with mortgage brokers and housing companies and working its way up the chain, he said.
In June Dann told Reuters he had sued 10 mortgage brokers, lenders and appraisers as part of predatory lending schemes.
A month later he turned his sights on credit rating agencies, who gave the highest credit grades to securities that have since proved to be riddled with risky assets.
Dann, who declined to comment on the recipients of his demand letters, said Ohio has been collaborating with prosectors from other states as fallout from mortgage market meltdown become a national issue.
This week President Bush, U.S. Treasury Secretary Paulson and presidential candidates addressed the housing slump.
On Wednesday, New York Attorney General Andrew Cuomo made headlines as his probe into the $11 trillion mortgage industry continues to widen to include Wall Street firms.
MULTI-STATE EFFORT
Ohio has one of the highest foreclosure rates in the United States, said Dann, who suspects some borrowers were manipulated into taking out loans they could not afford.
Dann said Ohio, New York and other states will band together more formally. To date, Dann says he has cooperated with five states to tackle the enormous mortgage industry.
Ohio has five attorneys working on the probe. The state has also retained three outside law firms partly on contingency to help provide staffing needed to conduct the probe.
"We issued the first set of civil investigative demands. We're working our way up from the bottom to the top, from defrauded home owners to the investment banks, the bond rating agencies and everyone else,"
Some critics contend underwriters, who generated windfall gains when the mortgage business was booming, pushed lenders and brokers to produce loans that could be packaged into securities.
"It's potentially more than just negligence" on the part of underwriters, he said. "The reward was so high. The demand to purchase this paper on Wall Street was so insatiable that it led people to be very aggressive about acquiring it, without regard to whether or not those signing the mortgage notes were defrauded."
Rising rates, slumping housing prices and higher energy costs have fueled an increase in defaults and foreclosures. Communities are concerned since multiple vacant homes can lead to lower values at nearby properties and rising crime.
(Reporting by Joseph A. Giannone; Editing by Andre Grenon) |
