We are also coordinating closely with the Department of Justice. We have put together a list of our top problem mortgage bankers and the states in which they operate. We are planning joint examinations and, if necessary, joint enforcement actions, with other state Superintendents and Commissioners in order to forcefully address abusive practices. Even more importantly, I am actively exploring with the Securities and Exchange Commission the preparation and publication of a joint best-practices guide for investment bankers. This guide will cover issues such as due diligence, adequate internal controls, risk management practices, sound underwriting standards and operational and reputational risks.
Many subprime lenders securitize their mortgages.
The prospectus typically contains a representation that the loans are in compliance with all applicable federal and state law. This, of course, includes fair lending statues as well as the Home Ownership Equity Protection Act and the Real Estate Settlement Procedures Act. A new joint guidance would shine a spotlight on this aspect of predatory lending and would encourage investment bankers to conduct necessary due diligence reviews. The spigot of money flowing to this market from the securitizations would be purified by high due diligence standards. Currently, the reps and warranties provide an immunity to the underwriters and investors that permits abusive practices to proliferate.