States Could Unite in Subprime Lending Probe

CHICAGO (Reuters) – State attorneys general are talking to eachother and could join their separate investigations over the subprimemortgage meltdown, Iowa Attorney General Tom Miller said.

"There’s been no movement to consolidate any of the cases, butnothing’s been ruled out either," Miller said in a telephone interviewon Monday with Reuters.

Miller, who took a lead role on previous nationwide settlements overquestionable lending practices that netted hundreds of millions ofdollars from Ameriquest Mortgage Co. and Household Financial, saidattorneys general are talking to each other about subprime mortgages.

"We understand the value of that and it’s never far from our mindsthat we can accomplish things together that we can’t individually,"Miller said, referring to the previous settlements. "But having saidthat, I think states are looking at different aspects of this wholeincredible scenario and mess of subprime and the consequences of it,and we’re keeping in touch with each other. It’s unclear where that’sgoing to lead."

He added that multistate legal efforts demand enormous resources for investigations, negotiations and litigation.

"There are only so many we can do and we have to be careful to pickones that accomplish the most good for our citizens," Miller said. "Onechallenge here is to find litigation that would help the borrower."

Almost all the states banded together to reach the so-called MasterSettlement Agreement in 1998 with U.S. tobacco companies, which areexpected to pay states $206 billion over a number of years. Theagreement with 46 states ended lawsuits against cigarette makers overrecovering the cost of treating smoking-related illnesses.

Miller said companies that repackaged risky mortgage loans wouldtraditionally face a securities case for failure to disclose or forinaccurately disclosing the risk. However, he pointed out that wouldbenefit investors and not homeowners, who remain the primary focus.

In the meantime, Miller has organized a multistate task force tomeet with mortgage servicing companies and investors to try to come upwith ways to avoid foreclosures.

"We’ve had meetings with the top 20 servicers and we’re getting datafrom them and we’ll come out with a report sometime soon," he said,adding that a similar concept helped with a wave of farm foreclosuresthat hit Iowa in the 1980s and produced useful results for borrowersand lenders.

While the group was concentrating on modifying loans to preventforeclosures, potential litigation was not being ignored, Miller said.With mortgage delinquencies causing unprecedented losses, manyfinancial institutions have said they are willing to modify loans andease terms for borrowers.

As foreclosure rates have skyrocketed, attorneys general in statessuch as New York, Ohio, Florida, Illinois and Connecticut have sent outsubpoenas as they investigate companies and banks involved in subprimemortgages that went bad or bond insurers that backed risky subprimemortgage-related securities. States are also scrutinizing Wall Streetcredit agencies for their role in rating the securities.

(Editing by Tom Hals)

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