The Securities and Exchange Commission is investigating Royal Bank of Scotland, Credit Suisse and other financial institutions for their handling of problem mortgage loans, according to public disclosures and people familiar with the matter.
The SEC is examining whether banks misled shareholders about the number of loans they might be forced to buy back because of early defaults - known as loan repurchase requests - and set aside sufficient reserves to fund those purchases or handle related litigation, according to people familiar with the matter.
RBS disclosed the probe in a regulatory filing last month, saying it relates to document deficiencies and remedial measure taken with respect to such deficiencies. RBS said it was co-operating with the investigation and has not experienced a significant
volume of repurchase demands . . . and has not ceased any of its US fore-closure activities.
Credit Suisse was subpoenaed by the SEC in relation to allegations made in a private lawsuit, according to court filings. MBIA sued Credit Suisse, alleging the bank fraudulently sold securities backed by loans that did not meet underwriting standards.
A spokesman for MBIA said the law firm representing it in the litigation has also been subpoenaed by the SEC for documents related to that lawsuit. Credit Suisse has denied any wrongdoing.
Another facet of the investigation is the examining of whether banks sold investors securities backed by mortgages that they knew fell short of underwriting standards.
The SEC is also looking into whether some banks reached settlements with originators over problem loans but failed either to disclose the pacts or replace the bad loans as required by contract, these people say. The practice is known as double-dipping because the banks collect fees twice, once for securitising the loans and again in settlements.
Banks are already under investigation for similar mortgage practices by New Yorks attorney-general. The New York prosecutor is probing practices at several banks including RBS, JPMorgan Chase, UBS, Deutsche Bank, Goldman Sachs, Bank of America and Morgan Stanley for securitisation and repurchase practices, people familiar with the matter have said.
The Financial Times Limited 2011