SEC Investigating Bad Credit Mortgage Lenders’ Practices
The Securities and Exchange Commission (SEC) is investigating a number of companies that operate in the troubled market for subprime, or bad credit home loans, the agency’s top enforcement official said Monday.
It has been known that the SEC was examining accounting issues at New Century, the nation’s second-largest issuer of subprime, or bad credit mortgages - higher-priced home mortgage loans for people with poor credit or low income.
But comments by SEC Enforcement Director Linda Thomsen Monday were the first public acknowledgment that the agency was involved in a broad examination of the subprime sector within the mortgage industry.
“We’re looking at subprime,” Thomsen told reporters following an address to an investment conference. “… As with anything, we’re going to look at all the actors and their roles.”
She declined to provide further details. The SEC as a rule does not comment publicly on current investigations.
The Bush administration’s housing secretary, Alphonso Jackson, said last week that the government was preparing to punish some bad credit mortgage lenders that have been under investigation for discriminatory practices.
He did not name the companies. HUD’s Office of Fair Housing has brought several cases against more than one mortgage lender and insurer for so-called predatory practices, and those enforcement efforts continue, the department said.
There has been an alarming spike in foreclosures, especially among homeowners who took out subprime loans. In recent weeks, lawmakers and regulators have been voicing concern that many people could lose their homes as mortgage delinquencies mount and distress grows.
Also, lawmakers have denounced what they say are abusive practices by some mortgage lenders that target the poor, minorities and the elderly. Senior Democrats are drafting legislation intended to curb abusive lending of reverse mortgage products and conventional home loans.
Anxiety that a blowup of subprime mortgage lenders could spill over into the broader economy has roiled the financial markets in recent weeks and played a major role in the swoon on Wall Street that pushed the Dow Jones average to its lowest levels in more than four years.
New Century has scrambled to stay afloat as banks cut off funding because of its failure to make payments. New Century, which already has stopped accepting all new home purchase loan applications, said there’s no guarantee it will receive any additional financing.
- Like other bad credit home loan lenders, New Century uses short-term borrowings - often from major Wall Street investment houses - to finance the mortgage loans it makes.
- Like other subprime lenders, it has become increasingly difficult for New Century to obtain the short-term lending needed to finance its mortgages.
The bad credit mortgage sector has seen a sharp decline in banks’ demand for potentially troublesome loans as the housing market has slowed since late 2005, grounding the high-flying real estate boom.
The fallout from the housing downturn has spurred several subprime lenders, including ResMae Mortgage Corp., Ownit Mortgage Solutions and Mortgage Lenders Network Inc., to file bankruptcy in recent months.
SOURCE: Associated Press