Subprime Problems » SEC

AIG (NYSE: AIG) Faces SEC Probe

Hansen — Fri, 06 Jun 2008 15:08:12 +0000

AIG will face a SEC probe over accounting practices related to their subprime mortgage exposure. It seems as if it will be investigated as to whether or not the firm inflated the value of their contracts linked to subprime mortgages. As much of the subprime fallout hit, Wall St. pundits remained impressed with AIG’s ability to remain insulated from write-downs and their seemingly low exposure. It isn’t even two years after AIG settled another accounting scandal which cost the firm $1.6 billion.

FBI Subprime Investigations

Hansen — Wed, 30 Jan 2008 00:12:30 +0000

The US Federal Bureau of Investigation (FBI) has commenced investigations against 14 corporations. The fraud investigation includes probes into insider trading and accounting fraud. The FBI is working together with the Securities and Exchange Commission. It is unclear who the targets of the FBI investigation are, but the SEC has probed MBIA (NYSE: MBI), UBS (NYSE: UBS), Bear Sterns (NYSE: BSC), Merrill Lynch (NYSE: MER), and Morgan Stanley (NYSE: MS)

About Subprime Lending

Hansen — Sun, 12 Aug 2007 19:21:37 +0000

Subprime lending, also called B-Paper, near-prime, or second chance lending, is a alludes to offering loans to borrowers who do not qualify for market interest rates because of spotty credit history.

Subprime lending is risky for both lenders and lendees due to the combination of high interest rates, poor credit history, and murky financial situations often associated with subprime applicants. Of course, the rate offered for subprime loans is higher than prime mortgage rates, recently the average spread has been as high as 350 basis points.

Subprime lending is not limited to housing, but rather involves a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others. Prime is the ideal, sub prime, would be a below prime, or less ideal debtor.

Subprime lending remains highly controversial. This is likely to increase as the subprime markets have fostered liquidity issues and market uncertainty. Predatory lending practices have existed, especially before the housing bubble looked ready to pop. This may have led to borrowers who could never meet the terms of their loans, thus leading to default, seizure of collateral, and foreclosure. Many were offered teaser rates on variable rate mortgages and have suffered as interest rates increased. Many lenders did not approve the debtor for the higher amount (above the teaser rates), as is considered good practice.

Proponents of the subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market.

Paraphrased and edited from Wikipedia.

SEC will check for hidden losses on Wall St.

Hansen — Sun, 12 Aug 2007 19:06:40 +0000

As fear of banks and brokers hiding subprime losses mounts, the SEC has stated that it will investigate the concern to ensure investors are fully in the loop.