The Securities and Exchange Commission is investigating the government-owned Residential Capital Corp. for possible misconduct in its loan origination and underwriting practices.
The SEC disclosed in court documents this week that it issued a formal order of investigation back in February to probe possible fraud in the offer and sale of MBS tied to ResCap.
The SEC said in court papers that it wants R.R. Donnelley & Sons, Chicago, to turn over certain due diligence records the company prepared for investment banks that underwrote the ResCap MBS.
The SEC said it needs the Donnelley reports to determine whether ResCap made "material misrepresentations or omissions about the mortgage loan pools that backed the securitizations under investigation."
At deadline a spokesman for R.R. Donnelley had not returned a telephone call about the matter. A spokeswoman for Ally Financial, the parent of ResCap, referred phone calls to the mortgage unit. At press time, ResCap had not responded.
During the height of the subprime securitization boom a handful of due diligence firms reviewed the underlying loans that backed the end securities. Some originators and Wall Street firms allowed multiple “exceptions” to the underwriting guidelines, which ultimately hurt loan quality.
Ally is the parent of the bankrupt ResCap which still originates and services. Ally is majority owned by the U.S. Treasury.