By Andrew Ackerman and Andrew R. Johnson
WASHINGTON--The Securities and Exchange Commission is
investigating the bankrupt mortgage subsidiary of Ally Financial
Inc., as part of a probe into possible fraud related to the unit's
loan-origination and underwriting practices.
In court filings, the SEC said it is examining Residential
Capital LLC loans that were bundled into mortgage-backed
securities. The agency said it began a formal investigation into
ResCap on Feb. 22.
The agency said it is "investigating ResCap's origination and
underwriting practices" for the approval of loans that were tied to
mortgage-backed securities.
The SEC documents were filed Monday as part of a request by the
agency to force R.R. Donnelley & Sons Co. (RRD) to turn over
documents it drafted as part of due diligence for the banks that
underwrote the securities, according to the filings.
The SEC subpoenaed R.R. Donnelley in June, but the company
refused to comply fully with the subpoena, the agency said.
Spokeswomen for Ally and ResCap declined to comment, as did a
spokesman for the SEC. An R.R. Donnelley spokesman couldn't
immediately be reached for comment.
ResCap, once one of the largest subprime lenders in the country,
filed for Chapter 11 bankruptcy on May 14 as litigation over faulty
mortgage securities mounted and bond-related payments loomed. Ally,
which isn't part of the bankruptcy, hopes that ResCap's filing will
allow it to sever itself from costly litigation that has been a
drag on the company and focus solely on its core auto-lending and
online-banking operations.
ResCap said in a bankruptcy-court filing in May that 27 lawsuits
regarding mortgage-backed securities had been filed against it as
well as related companies that aren't part of the bankruptcy,
including Ally and its bank subsidiary. A major component of the
mortgage lender's bankruptcy is a proposed $8.7 billion settlement
ResCap has reached with various MBS investors.
Reuters reported on the SEC investigation earlier Tuesday.
Write to Andrew Ackerman at andrew.ackerman@dowjones.com.