Bear Stearns Is Told by FTC to Provide Data for Mortgage Probe

Dec. 30 (Bloomberg) -- Bear Stearns Cos., the fifth-largest U.S. securities firm, was told by the U.S. Federal Trade Commission to provide data and documents in connection with an investigation of mortgage lending to risky borrowers.

Bear Stearns's EMC Mortgage Corp. unit, which buys and services home loans, received the demand following a Dec. 8 FTC resolution, according to a filing today with the Securities and Exchange Commission. The New York-based firm said EMC Mortgage is cooperating with the government's inquiry.

According to the filing, made by an $830 million mortgage trust set up by Bear Stearns, the FTC is investigating the so- called sub-prime mortgage market. It said the agency is trying to determine whether any lenders, brokers or companies that handle loan services such as payment collection violated consumer- protection laws.

The filing didn't specify which data or documents EMC was told to provide. Bear Stearns spokeswoman Elizabeth Ventura wasn't available for comment.

Bear Stearns is one of the world's biggest underwriters of mortgage-backed bonds.

``The principal business of EMC has been the resolution of non-performing residential mortgage loan portfolios acquired from Resolution Trust Corp., from private investors and from the Department of Housing and Urban Development,'' according to the filing by Bear Stearns ARM Trust 2005-12.

 

To contact the reporter on this story:
Gregory Cresci in New York at  gcresci@bloomberg.net 

Last Updated: December 30, 2005 12:59 EST

 

 

Bear Stearns Gets FTC Demand for Data on Mortgages (Update2)

Dec. 30 (Bloomberg) -- Bear Stearns Cos., the biggest underwriter of mortgage-backed securities, was told by the U.S. Federal Trade Commission to provide data and documents in connection with a probe of home loans to risky borrowers.

Bear Stearns's EMC Mortgage Corp. unit, which buys and services home loans, received the demand following a Dec. 8 FTC resolution, according to a filing today with the Securities and Exchange Commission. The New York-based firm said EMC Mortgage is cooperating with the government's inquiry.

According to the filing, made by a mortgage trust set up by Bear Stearns, the order is part of a broader FTC investigation of the $1 trillion market for so-called sub-prime mortgages. It said the agency is trying to determine whether any lenders, brokers or companies that handle loan services such as payment collection violated consumer-protection laws.

``This doesn't surprise me,'' said Kevin Weigel, who oversees $5 billion in sub-prime mortgage investments at Aegon USA Investment Management in Cedar Rapids, Iowa. ``It seems like regulators are throwing a net at a lot of people. Predatory lending has become a pretty high-profile issue.''

Peggy Twohig, an attorney in the FTC's Bureau of Consumer Protection, confirmed that the agency is investigating EMC Mortgage. She declined to comment further, saying FTC investigations are non-public.

Today's filing didn't specify which data or documents EMC was told to provide. Bear Stearns spokeswoman Elizabeth Ventura didn't return calls seeking comment. The firm's general counsel, Michael Solender, is out of the office this week and unavailable for comment, his assistant said.

Sub-Prime Growth

Customers are classified as sub-prime when they don't meet minimum requirements for creditworthiness. Banks typically charge sub-prime borrowers higher rates of interest on loans to compensate for what they consider a higher risk of default.

Sub-prime mortgages account for 13.4 percent of all mortgage debt outstanding, according to the Mortgage Bankers Association, up from 2.1 percent in 1999.

That growth has prompted more scrutiny from federal and state regulators. The U.S. Federal Reserve and the Office of the Comptroller of the Currency have been reviewing mortgage data to determine if members of minority groups and seniors paid excessive rates.

New York Attorney General Eliot Spitzer in April sent requests for data on mortgage loans to at least five banks, including New York's Citigroup Inc., the biggest U.S. bank by assets; HSBC Holdings Plc, the U.K.'s largest bank; and San Francisco-based Wells Fargo & Co., the biggest home-equity lender.

Biggest Underwriter

Bear Stearns, the fifth-biggest U.S. securities firm, is the No. 1 underwriter of mortgage-backed securities, data compiled by Bloomberg show. It also buys, services, finances and sells commercial and residential loans.

As of Aug. 31, the firm had made commitments to purchase or finance $3.14 billion of mortgages, Bear Stearns said in its third-quarter filing with the SEC. EMC Mortgage was servicing $47.3 billion of mortgages and real estate loans in default as of the same date, according to today's filing.

``The principal business of EMC has been the resolution of non-performing residential mortgage loan portfolios acquired from Resolution Trust Corp., from private investors and from the Department of Housing and Urban Development,'' the filing by Bear Stearns ARM Trust 2005-12, an $830 million mortgage trust, said.

Previous Probes

The FTC previously has looked into the sub-prime mortgage market. From 2000 to 2002, it examined Citigroup's sales practices as part of an investigation into a consumer-finance company the bank bought.

In 2004, the Fed fined Citigroup $70 million for improperly boosting credit-insurance fees. The bank in May changed its lending practices to ease concerns from some consumer advocates and regulators.

Citigroup spokesman Rob Julavits declined to comment to on the FTC investigation or say whether the bank has received a request similar to Bear Stearns's.

Potential for Liability

On May 2, 2003, the California Department of Corporations, which oversees brokerages and consumer-finance firms, revoked the license of Wells Fargo's home mortgage unit after finding it overcharged customers. Wells Fargo spokesman Alejandro Hernandez said the bank is unaware of any FTC request for information on mortgage lending.

In today's filing, Bear Stearns said the mortgage trust could be liable for ``monetary penalties'' if the originators of loans it holds as investments failed to comply with laws that discourage predatory lending. Additionally, the trust may be liable under federal law ``for all claims'' that borrowers make in court against lenders who sold them high-cost mortgages, according to the filing.

Shares of Bear Stearns fell 67 cents to $115.53 in composite trading on the New York Stock Exchange. They've gained 13 percent this year.

 

http://www.bloomberg.com/apps/news?pid=10000103&refer=us&sid=amLFixecfHw0

 

 

To contact the reporter on this story:
Gregory Cresci in New York at  gcresci@bloomberg.net 

Last Updated: December 30, 2005 16:14 EST

 

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