US federal prosecutors have begun a civil investigation into the subprime car finance markets with a focus on the packaging and selling of some of these loans in the secondary markets according to an article in The New York Times.
The US paper claims that the inquiry is taking place after regulators expressed concerns that the prescribed checks and balances were not being observed. In addition The New York Times earlier found that in some cases there had been signs that some loan applications had false information about the applicant’s income and employment history.
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The investigation came to light after GM Financial, the US captive finance provider for General Motors, disclosed in a securities filing that they had received a subpoena from the Justice department in regards to their securitisations based upon subprime loans since 2007.
Despite the fact that only GM Financial have made clear that they have received the subpoena it is expected that other companies will be approached over the sale of subprime loans to investors in the form of securitisations and other investment products.
In a statement to Motor Finance, GM Financial said: "Our understanding is that the request is focused on the subprime auto finance space in general. There are no allegations set forth in the subpoena and GMF is cooperating with the request."
In 2007 the bundling into investment products of subprime residential mortgages, which never got repaid, fuelled the collapse of Lehman Brothers and led to the credit crisis.
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By GlobalData
