The Financial Industry Regulatory Authority said recently that it fined Credit Suisse Securities (USA) LLC $4.5 million and Bank of America’s Merrill Lynch $3 million for “misrepresenting delinquency data and inadequate supervision in connection with the issuance of residential subprime mortgage securitizations (RMBS).”
FINRA said that in 2006, Credit Suisse misrepresented the historical delinquency rates for 21 subprime RMBS it underwrote and sold. The group also says that “for six of the 21 securitizations, the delinquency errors were significant enough to affect an investor’s assessment of subsequent securitizations, as it was referenced in four subsequent RMBS investments.”
In the Acceptance, Waiver and Consent (or AWC) Letter submitted by Credit Suisse, the investment bank says that on or around November 1, 2006, it was informed that one of its “master servicers” had provided erroneous information to a trustee in connection with the delinquency data for certain RMBS from January to September of 2006. The master servicer, i.e., the originating bank, said it had found the cause of the errors but did not correct the errors in the static pool of information posted on the Regulation AB website. Furthermore, the master servicer and trustee “informed Credit Suisse that they believed the errors were immaterial and that they did not intend to provide investors with amended monthly reports.”
In a separate case, FINRA found that Merrill Lynch negligently misrepresented the historical delinquency rates for 61 subprime RMBS it underwrote and sold. However, in June 2007, after learning of the delinquency errors, Merrill Lynch promptly recalculated the information and posted the corrected historical delinquency rates on its website, according to the regulatory group.