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| Bear Stearns by night (Photo credit: C R) |
The lawsuit is the first to be filed under the auspices of the RMBS Working Group, which was set up by President Barack Obama to investigate and prosecute alleged misconduct that contributed to the financial crisis.
Subprime mortgages were sold to people with less-than-ideal credit. Many of them began defaulting on their loans when the housing bubble burst and their introductory "teaser" interest rates shot up, making their payments unaffordable. Because many of those mortgages were sliced and repackaged as securities that could be bought and sold — known as RMBS — the mass defaults led to huge losses at large U.S. banks and other financial firms, helping fuel the global economic meltdown.
New York Attorney General Eric T. Schneiderman is alleging that Bear Stearns led its investors to believe that the loans in its RMBS portfolio had been carefully evaluated and would be continuously monitored. Schneiderman alleges that Bear Stearns failed to do either, resulting in investors buying securities backed by mortgages that borrowers couldn't repay and defaulted on in huge numbers.
The complaint further alleges that even when Bear Stearns executives were made aware of these problems, the firm failed to correct its practices or disclose material information to investors. The executives routinely overlooked negative findings and continued to package the loans into securities for sale to investors, it says. ... Continue to read.
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