The Financial Industry Regulatory Authority has slapped Credit Suisse Securities (USA) LLC and Merrill Lynch with multimillion-dollar fines for misrepresenting delinquency rates on subprime mortgage-backed securities they sold to investors, The Associated Press reports.
Credit Suisse will pay $4.5 million and Merrill Lynch will pay $3 million to settle the charges, FINRA said Thursday. The companies did not admit or deny the agency’s charges, but consented to the findings.
Firms that issue subprime residential mortgage-backed securities are required to disclose data on the delinquency rates of similar loans previously pooled and packaged into securities, a process known as securitization.
That historical delinquency rate data can help investors assess whether future returns on a similar mortgage-backed security might be disrupted by borrowers’ failure to make loan payments.
Subprime loans, in particular, are often made to borrowers considered high credit risks. Investments made up of these loans typically carry a higher yield for investors — but a greater risk borrowers might default.
FINRA, the securities industry’s self-policing organization, found that in 2006 Credit Suisse misrepresented the historical delinquency rates for 21 residential mortgage-backed securities that it underwrote and sold.
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