- The Washington Times - Monday, March 19, 2007


The Securities and Exchange Commission is investigating companies that operate in the troubled market for subprime mortgage loans, the agency’s top enforcement official said yesterday.

It has been known that the SEC was examining accounting practices at New Century Financial Corp., the nation’s second-largest maker of subprime mortgages — higher-priced home loans for people with tarnished credit or relatively low incomes.

But comments by SEC Enforcement Director Linda Thomsen yesterday 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,” she told reporters after 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 role of major Wall Street investment firms in the subprime market debacle also is under scrutiny. In Massachusetts, the state’s top securities regulator said last week that he had issued subpoenas to two major firms — UBS Securities LLC and Bear Stearns & Co. Inc. — as part of an investigation into whether their analysts’ research ignored subprime lenders’ mounting financial problems.

The Bush administration’s housing secretary, Alphonso R. Jackson, said last week that the government was preparing to punish some subprime 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 mortgage lenders and insurers for predatory practices, and those enforcement efforts are continuing, 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 homeowners could lose their homes as mortgage delinquencies mount and distress grows in the market for subprime mortgages.

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.

Sen. Christopher J. Dodd, Connecticut Democrat, chairman of the Senate Banking Committee, announced yesterday that he had asked the chief executives of five of the biggest players in the subprime mortgage market to testify at a hearing yesterday. In addition to New Century, they are: HSBC Holdings Corp.; Countrywide Financial Corp.; WMC Mortgage, which is owned by General Electric Co., and First Franklin Financial Corp., part of Merrill Lynch & Co.

“At the very least, homeowners facing foreclosure deserve to know what factors contributed to their dire financial straits, and what steps are needed to fix this pressing problem.”

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 Industrial Average to its lowest levels in more than four years.

New Century has scrambled to stay afloat as banks cut off funding because of a failure to make payments. The Irvine, Calif., company, which already stopped accepting all new loan applications, said recently there is no guarantee it will receive any additional financing.

New Century said yesterday it had received cease-and-desist orders from four more states to stop it from accepting new mortgage applications. It said in a filing with the SEC that Connecticut, Maryland, Rhode Island and Tennessee issued the orders; Massachusetts, New Hampshire, New Jersey and New York already have issued similar orders, according to the company. In addition, its Home123 Corp. unit entered into a consent agreement with the Pennsylvania Banking Department to keep it from taking new mortgage applications in that state, New Century said.

Like other subprime lenders, New Century uses short-term borrowings — often from major Wall Street investment houses — to finance the mortgage loans it makes. And, as with other subprime lenders, it has become increasingly difficult for New Century to obtain the short-term lending needed to finance its mortgages.

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