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Investment Banks Blamed for Subprime Woes

Investment Banks Blamed for Subprime WoesLawsuit planned by OH AG

May 17, 2007


The Ohio attorney general’s organized crime task force and other task forces are investigating subprime lenders and the Wall Street investment banks that funded them — with the intention of bringing a lawsuit against them.

“We’re looking at everyone that’s involved in creating this crisis in the subprime market,” Leo Jennings, Ohio Attorney General Marc Dann’s communications director, explained to “That includes the large financial firms who supplied the capital and basically encouraged companies like New Century to continue to make loans even though they knew it eventually would collapse because the loans were made to people who were not credit worthy or were made at terms that everyone knew borrowers could never meet. But no one cared.

“So we’re taking a hard look at the folks who supplied the capital as well as the people who made the loans,” he said.

He declined to say how many staff persons are working on the investigation of subprime lenders and Wall Street investment banks “because it involves the organized crime task force” but said that substantial resources are being devoted to the investigation.

“And we will continue to devote the time, financial and human resources we need to complete the investigation,” Jennings stressed.

He said he did not know when the planned suit will be filed but that it would be “before the end of the year.”

Meanwhile the attorney general’s office has been working with the governor’s foreclosure task force, trying to prevent lenders from proceeding with foreclosures “until we have alternatives to offer people,” including opportunities to convert existing mortgage into mortgages they can afford, Jennings said.

“We’re trying to give people as much time as possible to deal with the foreclosures that they’re facing,” he explained.

Dann has told the Cleveland Plain Dealer that while many borrowers have been unable to find lawyers willing to take their cases against lenders on a contingency basis, “I’ve got 400 lawyers.”

Earlier this year, Dann reached an agreement with New Century Financial Corp. to halt all foreclosures pending reviews of all loans subject to foreclosure to determine whether the terms of those loans violate any state laws, Jennings noted.

“We’re continuing to monitor their activity in the state but the agreement is working as we envisioned,” he said. “None of their foreclosure actions have moved forward to my knowledge.”

Ohio has the highest foreclosure rates for all types of loans and for subprime mortgages, according to the Mortgage Bankers Association. At the end of last year 3.38 percent of all mortgages and 11.32 percent of subprime mortgages in the state were in foreclosure. That compares with national rates of 1.19 percent for all mortgages and 4.53 percent for subprime mortgages.

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