The paper is reporting that they were told that New York State Attorney General Eric Schneiderman has issued subpoenas to four bond-insurance companies as part of his expanding probe of mortgage-securitization practices.
At the same time, California Attorney General Kamala D. Harris is expected to announce Monday a new law-enforcement effort aimed at mortgage-industry practices, people familiar with the initiative said. The effort will cover a range of activities, from loan origination to the packaging of mortgages into securities, and will include both civil and criminal prosecutions, these people said.
Mr. Schneiderman has issued subpoenas to units of Ambac Financial Group Inc., Assured Guaranty Ltd., MBIA Inc. and Syncora Holdings Ltd., people familiar with the investigation said.
The bond insurers aren't the subject of the investigation, these people added, but have been asked to provide information about their dealings with banks that packaged mortgage loans into securities. Bond insurers provided guarantees on a variety of mortgage-related products and have suffered heavy losses as a result of the mortgage meltdown.
Mr. Schneiderman's office has asked the bond insurers for information regarding claims paid to bond investors and about litigation and settlements the insurers have entered into with banks that packaged loans into securities, these people said.
An MBIA spokesman said the company plans to comply with the subpoena, which focuses on lawsuits filed by MBIA against banks that packaged loans into securities guaranteed by the company.
"Syncora did receive a subpoena from the New York Attorney General to provide certain information relating to mortgage loans, payments and potential settlements," said a company spokesman, who declined to comment further.
A spokeswoman for Assured Guaranty declined to comment on whether the company had received a subpoena. "We support the Attorney General with their investigation, which will hopefully accelerate the resolution of mortgage-origination, -securitization and -servicing problems," she said.
A spokesman for Ambac declined to comment.
The subpoenas are the latest sign of how state and federal officials are stepping up their scrutiny of the mortgage machine. Federal prosecutors, for instance, are using tools such as the Civil War-era False Claims Act in an effort to recoup government losses on soured mortgage loans. The tools available to Mr. Schneiderman include the state's Martin Act, which doesn't require prosecutors to prove intent to defraud. The Martin Act has been used by Mr. Schneiderman's predecessors to address a variety of alleged misconduct by Wall Street.
Bond insurers have argued they were deceived by banks about the quality of the loans they guaranteed. They have pushed banks to repurchase troubled mortgages and gone to court when that effort has failed.
MBIA, for instance, has filed eight mortgage-related lawsuits, most involving guarantees on home-equity loans and lines of credit that were packaged into bonds. These lawsuits generally allege the banks breached contracts and committed fraud by including loans in the bond deals that didn't conform with guidelines outlined in documentation related to the deals. In some cases, "as many as 90% of the loans reviewed didn't conform with underwriting guidelines," an MBIA spokesman said.
In its most recent securities filing, Ambac said it has used the results of detailed loan-file examinations "to make demands for loan repurchases...and, in certain instances, as part of the basis for litigation filings."
Bank of America Corp. in April agreed to a $1.6 billion settlement to resolve repurchase claims filed by Assured Guaranty. Assured Chief Executive Dominic Frederico told investors in May that the company "will pursue fraud claims where applicable" in situations where banks don't agree to repurchase defective loans. In announcing the April deal, Bank of America called the agreement "an important step towards resolving" repurchase issues related to its purchase of Countrywide Financial Corp.