February 20, 2008 - Ohio's Attorney General, Marc Dann, has already issued subpoenas to 15 mortgage lenders and brokers in his ongoing investigation into subprime lending. Today, he announced that 15 more subpoenas were coming, and although he refused to say who the targets of his investigation are, he did say that they included a number of household names. His plan is to determine which lenders, brokers and rating agencies violated state laws and then bring a case to a jury.

Marc Dann is being aggressive in his pursuit of justice in mortgage lending. He probably feels that he has to be since Ohio's foreclosure rate is one of the highest in the country.

Dann told his audience at the Reuters Housing Summit in New York that, "We're going to issue our next wave of subpoenas in the next couple of weeks. We're working our way up the ladder." Dann believes that as housing prices were peaking, there were a variety of people within the lending industry that were aware of problems but who simply didn't speak up. "At some point it became obvious that there was something dramatically wrong," Dann said, speaking of home mortgage markets. "We're going to find out who knew. We've got to bring some justice and some equity." 

Dann's investigation is looking for a variety of legal violations. These include predatory lending, violation of antitrust laws, consumer law violations and civil rights violations. It is fairly apparent that he not only wants to make the firms involved in these violations feel some financial pain, he would like to throw some of their executives in jail. Whether or not he is able to accomplish the latter of his goals remains to be seen.

But Dann does not want to seek out of court settlements. He wants to bring his case to a Jury. "The only way to send a message to folks... is by suing them. We've got to step up and hold them accountable," he said. "If I can get this case to a jury in Ohio, you can't fit enough zeros on the check."

Dann's office filed a securities fraud suit against FreddieMac, a federally sponsored company that backs many of the nation's home mortgages, last month. The suit alleges that FreddieMac failed to disclose its exposure to subprime mortgages to investors. The Ohio Public Employee's Retirement System had made investments that it might not have made had FreddieMac fulfilled its disclosure obligations.

Dann is also considering filing a similar suit against FannieMae, another federally sponsored company which backs home mortgages on the secondary market. The allegations against FannieMae are similar to those against FreddieMac. "It appears that (Fannie Mae) also failed to advise their shareholders of the extent of their subprime holdings," he said.

Dann's investigation is far from the only one being conducted by a state or local government. Last month the City of Cleveland filed suit against 21 banks, claiming that their lending practices have led to abandoned home, blight, reduced property values and reduced tax collections.

The City of Baltimore has sued Wells Fargo claiming that it targeted African American's for the sale of high priced loans.

The states of New York and Massachusetts are also involved in various investigations of lenders, brokers and rating agencies.

by Jim Malmberg

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