The United States Department of Justice wants GM Financial to produce documents on underwriting criteria, origination, warranties and securitization of subprime loans since 2007, asking questions about its practices. The office of Manhattan US Attorney Preet Bharara sent a subpoena for documents to GM Financial, a person privy with the matter said.
"There are no allegations set forth in the subpoena and GM Financial is cooperating," said Chrissy Heinke, a company spokeswoman. GM president Dan Ammann said that the request is part of an industry-wide inquiry into the subprime order financing across a number of lenders.
He added that the company has yet to open its own internal investigation into its own practices. The inquiry is based on a 1989 law known as FIRREA that the US government relied on to go after mortgage lenders accused of wrongdoing.
FIRREA imposes a lower burden of proof than a criminal prosecution and could result to penalties of over $1 million for each fraudulent statement or act. Countrywide Financial was recently ordered to pay $1.3 billion in penalties for selling defective mortgage loans to Fannie Mae and Freddie Mac in the run-up to the 2008 financial crisis.
It was found liable last year for selling thousands of bad loans to Fannie Mae and Freddie Mac. Michael Bresnick, a former head of the department's financial fraud task force, remarked that DOJ's use of FIRREA in the past few years has resulted to some “enormous settlements” or court-ordered penalties, particularly when mortgages are concerned. [source: Bloomberg]