Ohio office subpoenas subprime lenders

Two other states are
following Ohio’s lead.

COLUMBUS (AP) — Ohio’s attorney general issued more than a dozen subpoenas Friday to obtain records from subprime mortgage lenders, an unusual tactic underscoring the state’s frustration with the lack of federal action on the mortgage crisis.

Two other states have issued subpoenas to try to determine if any wrongdoing has occurred as home foreclosures have multiplied. Massachusetts subpoenaed investment firms, and New York subpoenaed government-sponsored lenders Fannie Mae and Freddie Mac in an investigation of appraisal collusion.

But Ohio appears to be the first state to issue subpoenas directly to subprime lenders, who often give adjustable-rate loans to borrowers with poor credit.

“For large banking and securities matters, most states leave a lot of regulation to the federal government,” said Alan C. Michaels, an Ohio State University law professor specializing in white-collar crime. “It is the exception, not the rule, for a state to take it on itself.”

Ohio Gov. Ted Strickland said Thursday he hopes Congress passes legislation that will make it easier for borrowers to stay in their homes. But he and Attorney General Marc Dann said Ohio — which has had more foreclosures than any states except California and Florida — cannot wait for the federal government to take action.

“The federal government’s abandonment of its responsibility is one of the primary causes of the crisis we face today,” Dann said Friday.

While the subpoenas indicate there is a serious investigation, Michaels said, it’s impossible to determine whether they will have any impact on the subprime market. Issuing subpoenas requires no probable cause or chance of success, and actions in the other states are too recent to provide any insight.

Dann said he was precluded by law from specifying the number of subpoenas issued or saying who received them. They appeared to be in response to the failure of 20 subprime lenders doing business in Ohio to sign a compact proposed by Strickland.

“What raises a question in our mind is whether these subpoenas are being issued because of the companies’ failure to enter the compact, or was this the result of ongoing information?” said Paul Richman, senior director of government affairs at the Mortgage Bankers Association, which represents 18 of the companies targeted for the compact.

The compact was designed to keep Ohioans in their homes, and included a requirement that lenders give borrowers six months’ notice before a rate reset or change in monthly payment.