SEC Investigating Mortgage Disclosures

Remember the big put-back fiasco that began last fall? That's when some major investors were demanding that banks buy back bad mortgages that were packaged into securitizations. Although little progress has been made as the legal battle continues, the situation has caught the Securities and Exchange Commission's eye. It is now investigating whether or not banks misled investors through the disclosures they provided. Kara Scannell and Suzanne Kapner from the Financial Times report:

Kenneth Lench, chief of the SEC's structured products unit, said at a conference in Washington on Friday that issues of interest to the commission include whether investors were properly informed about underwriting and foreclosure practices and the quality of mortgages used to back securities.
While declining to discuss any investigations, Mr Lench highlighted areas that could be of concern: "Were representations relating to the transfer or documentation of mortgages into the loan pools accurate? Did activities such as 'robo-signing' contradict those representations? Were disclosures to investors regarding the quality of the loans in the pools accurate?"

You may recall that false representation of the quality of the mortgages sold to investors was one of the allegations against Bear Stearns in the recently unsealed lawsuit filed by Ambac that Teri Buhl reported on here.

Read the full story at the Financial Times.