Finra, a regulator with an impressive track record of investigatory failures, is looking into the accuracy of disclosures linked to subprime RMBS offerings, according to a Reuters report on Thursday.
According to the Reuters report, Finra’s enforcement director James Shorris said:
[the regulator] taking a hard look at whether broker-dealers made “misstatements” or included “erroneous” information about their offerings, among other issues and practices.
This will please MBIA, which is embroiled in litigation with various mortgage players, including Countrywide, over their representations on the quality of the underlying loans included in the securities.
As MBIA alleged in its 2008 complaint against Countrywide (now owned, of course, by Bank of Amerrill Lynch):
Countrywide falsely represented to both MBIA and the investors that Countrywise had originated the mortgage loans in strict compliance with its underwriting standards and guidelines, which were developed over time to screen the creditworthiness of borrowers and the likelihood that the mortgage loans would be repaid.
In reality…Countrywide…developed a systematic pattern of abandoning its own guidelines for loan origination and underwriting by knowingly lending to borrowers who could not afford to repay the loans, who committed fraud in loan applications, or who otherwise did not satisfy the basic risk criteria for prudent and responsible lending that Countrywide claimed to use.
In April, a judge ruled that the bond insurer’s case against the mortgage lender (and Bank of America, which MBIA added to the complaint) could proceed. MBIA has alleged fraud, breach of good faith and negligent misrepresentation. The judge dismissed the latter claim.
Bank of America has said it had nothing to do with Countrywide’s alleged conduct, intends to “vigorously defend against the allegations,” a spokesman said in a statement.
This is an area of litigation and investigation to keep an eye on, even if Finra is about 3 years late to the party.
Related links:
[The Stanford Series] What does the ‘F’ stand for in FINRA? – FT Alphaville
Subprime: it’s back in the headlines – FT Alphaville
SEC accuses Angelo Mozilo of securities fraud, insider trading – FT Alphaville
Remember New Century? The SEC sure does – FT Alphaville