Investigators Ask: Did Banks Withhold Info?

Banks hid risk of bundled 'exception' loans, insiders say
By Jim O'Neill,  Newser User
Posted Jan 12, 2008 4:35 PM CST
Chart shows percentage of foreclosures starts for subprime, FHA, VA, prime and all loans, percentage of seriously delinquent loans and subprime adjustable-rate mortgage forclosure starts; 1c x 3 1/8 inches;...   (Associated Press)
camera-icon View 4 more images

(Newser) – Prosecutors are probing Wall Street banks to see if they ever revealed the risky nature of certain subprime mortgage investments, the New York Times reports. Industry experts are accusing the banks of turning high-risk loans, called exceptions, into investments without divulging details to investors and credit-rating agencies. One probe, led by New York Attorney General Andrew M. Cuomo, could lead to charges within weeks.

Insiders contend that banks knew of the exceptions, made for buyers whose credit was too poor to qualify for loans in a booming market. Experts estimate that some bundles in the $1 trillion subprime market were infected with as much as 80% worth of exceptions. “Common sense was sacrificed on the altar of materialism,” said one exec who saw lenders and banks permit such sketchy mortgages.