Legal Action Likely Against Firms Linked to Origins of Housing Crisis

9:06 AM, Feb 23, 2012   |    comments
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By BRIAN TUMULTY
Gannett Washington Bureau

WASHINGTON - Further legal action is likely before the end of the year against firms involved in the origins of the housing bubble, the chairwoman of the Securities and Exchange Commission said Wednesday.

A working group of federal agencies and state attorneys general, co-chaired by New York Attorney General Eric Schneiderman, is looking into the packaging and selling of high-risk, mortgage-backed securities that fueled the run-up in housing prices.

"I think we'll see some serious cases out of this group before too long,'' SEC Chairwoman Mary Schapiro told reporters. "Not within weeks, but within months, I'm hopeful.''

Danny Kanner, spokesman for Schneiderman, said Wednesday the working group has "made great strides'' since its formation late last month.

He said the objective continues to be "accountability for those responsible for the mortgage crisis and far greater relief for homeowners.''

Earlier this month, five leading banks - Ally Financial (formerly GMAC), Bank of America, Citigroup, JP Morgan Chase and Wells Fargo - agreed to pay $25 billion in restitution for abusive practices that pushed many homeowners into foreclosure at a time when they might have been able to modify their mortgages.

That settlement was reached by the Justice Department, the Department of Housing Urban Development and 49 state attorneys general.

The SEC was not a party to that settlement. The agency is instead working with other members of the working group in probing the practices that created the housing bubble that peaked in late 2005.
Housing prices have continued to drop, according to a report released Wednesday by the National Association of Realtors. The January median price of existing single-family homes was $154,400 nationally, 2.6 percent lower than a year earlier, the association reported.

Distressed homes such as foreclosures and short sales represented 35 percent of all sales last month.

Schapiro noted her agency already has "named over 100 individuals in financial crisis cases, many of them CEOs and CFOs and other senior executives."

"And we will continue to do that," she said. "We will take the cases wherever the facts and the law allow us.''

Unlike the Federal Trade Commission and Justice Department, which allows firms to settle cases with an explicit denial of wrongdoing, the SEC does not.

"We do hold individuals accountable," Schapiro said. "I absolutely share and understand the frustration that the public feels in general that people aren't being held accountable for the financial crisis. But I can tell you, we brought a lot of tough prosecutors to the SEC whose greatest desire and goal is to bring the biggest and toughest case and hold the maximum number of people accountable."

The SEC held a training session two weeks ago for hundreds of assistant U.S. attorneys, lawyers representing state attorneys general, SEC attorneys and others to go over issues that might arise while pursuing cases against firms responsible for the housing crisis, including what documents to look for and what sort of testimony will be needed.

"I sat in on part of it just because I was curious and thought it was an excellent day,'' Schapiro said.

She declined to predict whether homeowners who became victims of the housing bubble will be see any financial compensation.

"I have no idea what the terms - if any are settled - what the terms would look like,'' Schapiro said.

The securitized high-risk mortgages under investigation include negative amortization loans and interest-only mortgages that were packaged and sold by securities firms - other than Freddie Mac, Fannie Mae and Ginnie Mae - incorporated for the most part in Delaware and New York.

By BRIAN TUMULTY

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