FINRA says that Barclays Capital Inc. will pay $3 million over charges of inadequate supervision related to the residential subprime mortgage securitizations and the misrepresentation of delinquency data. The SRO claims that between 3/07 and 10/10, Barclays misrepresented three RMBS’s historical delinquency rates.
Per industry rules, financial firms have to give investors certain performance information for securities that they issue. FINRA says that Barclay’s Capital misrepresented the historical delinquency rates for the RMBS between March 2007 and December 2010. This inaccurate data was published on the company’s website, which impacted how investors were able to evaluate other securitizations.
Historical delinquency rates, which provide historical performance information for previous securitizations with mortgage loans, are key in helping an investor determine and RMBS’s value and whether mortgage holders’ inability to make loan payments could disrupt future returns. The inaccurate information that was posted on the Barclay’s Capital website was referred to as historical delinquency rates in five subsequent residential subprime mortgage securitizations and had errors that were key enough to impact investors.
According to FINRA Enforcement Chief Brad Bennett, Barclay lacked a system that could ensure that delinquency data that was published was accurate.
Barclays has settled the case. However, the financial firm is not denying or admitting to the charges.
It was just earlier this year that FINRA fined Merrill Lynch $3 Million and Credit Suisse Securities $4.5 Million over misrepresentations involving RMBS. Both financial firms settled the allegations without denying or admitting to the charges.
According to the SRO, in 2006, 21 RMBS’s historical delinquency rates were misrepresented by Credit Suisse. The financial firm allegedly knew that this information was not accurate yet failed to adequately look into the mistakes, tell clients about the errors, or correct the information, which was published on its we site. The delinquency errors for six of the 21 securitizations were enough to impact the way investors were able to evaluate subsequent securitizations. Credit Suisse also allegedly did not define or name the methodology that was applied in determining the mortgage delinquencies in five other subprime securitizations. (Disclosing which method was issued is required because there are different standards for determining delinquencies.)
Regarding the charges against Merrill Lynch, the SRO claims 61 of the financial firm’s subprime RMBS had historical delinquency rates that were misrepresented. However, upon discovering the mistakes, Merrill Lynch published the correct data online. In eight cases, the delinquencies impacted investors’ ability to assess subsequent securitizations.
FINRA Fines Barclays Capital $3 Million for Misrepresentations Related to Subprime Securitizations, FINRA, December 22, 2011
Finra Fines Credit Suisse, Bank of America Over RMBS Errors, Bloomberg, May 26, 2011
More Blog Posts:
Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011
Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities, Institutional Investor Securities Blog, December 17, 2011
Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investor Securities Blog, July 22, 2011