Regulatory investigations into mortgage-securities pricing are examining whether financial firms should have told the public earlier about the declining value of such securities and how they priced them on their books. The Securities and Exchange Commission wants to know what people knew or had reason to be concerned about and when they knew it. Among the firms being examined regarding their valuation methods are Morgan Stanley (MS), Merrill Lynch (MER), Bear Stearns (BSC) and UBS (UBS). The SEC is asking questions about whether financial firms were valuing mortgage-related securities differently on their own books compared to the valuations they applied to the holdings of customers and whether any firm changed its valuation methodology to one that was more favorable in order to avoid or forestall taking big losses.
The SEC is also investigating how retail bank Washington Mutual (WM) reported on mortgage loans that regulators suspect were based on inflated appraisals. The inquiry involves several possible issues, including whether WaMu accurately disclosed to investors of mortgage-backed securities how its loans were appraised as well as whether the company properly accounted for its loans in financial disclosures. A Washington Mutual spokeswoman said the SEC has launched an inquiry, not a formal investigation. WaMu said this month that it would no longer issue loans to people with shaky credit histories.Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.