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