Securities regulators have broadened their inquiry into the mortgage industry, asking big banks about the early stages of securitizing home loans, two sources familiar with the probe said.
The Securities and Exchange Commission launched the new phase of its investigation by sending out a fresh round of subpoenas last week to big banks including Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, Goldman Sachs Group Inc and Wells Fargo & Co, the sources said.
Months ago, the SEC began looking into the banks' foreclosure practices following allegations that mortgage servicers were using shoddy paperwork to evict delinquent borrowers from their homes.
Now the SEC is looking at how the lenders packaged up mortgages for sale to investors, said the sources, who requested anonymity because the probe is not public.
Questions from the SEC include information about the role of so-called master servicers -- specialized firms that oversee the selection and maintenance of the large pool of home loans that go into every mortgage-backed bond.
In many cases, Wall Street banks that underwrite mortgage-backed securities either own their own master servicing firms or are closely aligned with one.
The Justice Department, banking regulators and the attorneys general in all 50 U.S. states are also probing potential wrongdoing.
The state of Arizona sued Bank of America on Friday, accusing the bank of misleading consumers about its home loan modification process.
TRUSTS AND TRANSFERS
One of the sources said the SEC is seeking information about the role banks had in mortgage securitization. The regulator is also looking at the role trustees for the trusts that issued the mortgage-backed securities had in monitoring the performance of the underlying loans.
The SEC is looking at whether loans were properly transferred to the trusts that issued the securities, the source said.
The renewed look at the securitization process is an extension of the SEC's preliminary probe into the mortgage mess. The SEC's regional offices are all looking at some aspect of the foreclosure crisis.
The SEC had no comment.
Separately, the SEC is still investigating banks, credit rating agencies and individuals in connection with the 2007-09 subprime crisis. Those investigations center around potential misrepresentations to investors about the value of the mortgage-backed securities that helped fuel the crisis.
The agency has filed some high-profile cases, including one against former Countrywide Financial chief Angelo Mozilo and another against Goldman Sachs.
Banking regulators, including the Federal Reserve, are reviewing lenders' foreclosure practices and are expected to reveal their findings in January.
In particular, the Fed is concerned about investors accusing lenders of misrepresenting the loans that underpin mortgage securities, and demanding repayment.
That has already happened with Bank of America, which has started negotiating with a group of angry mortgage investors, including BlackRock Inc.
Bank of America, Citigroup, JPMorgan and Goldman had no comment. Wells Fargo said it is always working with regulators and others who are interested in its servicing business but declined to comment on whether the bank had received a subpoena.
(Additional reporting by Elinor Comlay and Joe Rauch; editing by John Wallace and Tim Dobbyn)