Judge says Feds should be given mortgage firm data

by Ryan Smith12 Nov 2013

If the U.S. government is looking for a list of mortgage lenders to sue, it may be getting some help if a federal judge has anything to say about it.

U.S. Magistrate Judge Donna Martinez said Monday that due diligence firm Clayton Holdings LLC should turn over reviews prepared for clients between 2005 and 2007, along with emails between employees and clients, according to a Reuters report. The information was subpoenaed in July by investigators working on behalf of the government’s Residential Mortgage-Backed Securities Working Group. If the subpoena is enforced, the information could prove an embarrassment of riches to federal authorities wishing to pursue litigation against big banks for selling shoddy mortgage-backed securities.

According to the government, Clayton’s due diligence reviews concerned “potential problems with individual loans making up the loan pools, as did internal and external communications at Clayton associated with the reviews.”

Clayton, however, is fighting the subpoena, calling it a “fishing expedition” on 193 of its clients – not just the 16 major lenders the government has said are being investigated. But Martinez ruled that Clayton hadn’t demonstrated that complying with the subpoena was burdensome, according to Reuters.

“The government's investigation into abuses in the residential mortgage-backed securities market is broad and extensive,” she ruled. “The relevance of the agency's subpoena requests may be measured only against the general purposes of its investigation... Clayton has not met its burden of showing that the subpoena is unreasonable.”