SEC Files Home Loan Lawsuit
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UPDATED: Nov 27, 2012
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The SEC has filed a lawsuit against home loan lenders J.P. Morgan and Credit Suisse for misleading investors in purchasing residential mortgage-backed securities (RMBS). Both lenders have agreed to settle for a combined total of $400 million. The SEC will use this settlement to repay investors that were misled by the two lenders.
Federal regulations require that delinquency information must be disclosed to buyers who purchase asset-backed securities. Investors need information regarding delinquency since a return on investment can only be made on financing which is accruing interest and being repaid.
According to the SEC’s press release, J.P. Morgan caused investors to lose $37 million on undisclosed delinquent home loans. J.P. Morgan was also charged with Bear Stearns’ own infractions and failures since Bear Stearns is one of J.P. Morgan’s subsidiaries.
The release also states that Credit Suisse caused investors to lose more than $10 million by failing to disclose that it retained money from settlement claims made against home loan lenders that the bank no longer owns.
These very same practices contributed to the Great Recession, according to SEC officials.
“Misrepresentations in connection with the creation and sale of mortgage securities contributed greatly to the tremendous losses suffered by investors once the U.S. housing market collapsed. Today’s actions involving RMBS securities are a continuation of the SEC’s strong efforts to pursue wrongdoing committed in connection with the financial crisis,” said Robert Khuzami, Director of the SEC’s Division of Enforcement, in an SEC press release.
The lawsuit is a sign that current regulatory efforts have successfully dealt punitive damage to home loan lenders for infractions.
“Today’s filings represent significant steps towards accomplishment of the Working Group’s mission – to investigate and confront the abuses in the residential mortgage-backed securities market that significantly contributed to the Financial Crisis,” said John Walsh, RMBS Working Group Co-Chair and U.S. Attorney for the District of Colorado. “The Working Group model allows the Department of Justice to lend a hand to other enforcement partners around the country who, in turn, have their own unique resources, talents, and legal tools to contribute to the effort. And the Justice Department’s efforts in this area have benefited from SEC’s work on its own cases.”
The home loan lawsuit is the product of a joint investigation by the SEC Enforcement Division and the Financial Fraud Enforcement Task Force’s Residential Mortgage-Backed Securities Working Group. The RMBS Working Group is an organization of over 200 specialists and operatives from federal and state agencies.