Issuers of subprime RMBS are required to disclose historical performance information for past securitizations that contain mortgage loans similar to those in the RMBS being offered to investors.
FINRA in its investigation found that in 2006, Credit Suisse misrepresented the historical delinquency rates for 21 subprime RMBS it underwrote and sold.
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, said FINRA.
In a separate case, FINRA found that Merrill Lynch negligently misrepresented the historical delinquency rates for 61 subprime RMBS it underwrote and sold.
In eight instances, the delinquencies were significant enough to affect an investor’s assessment of subsequent securitizations, as it was referenced in five subsequent RMBS investments.
In settling this matter, Credit Suisse and Merrill Lynch neither admitted nor denied the charges, but both broker-dealers consented to the entry of FINRA’s findings.
