Clayton Granted Immunity in New York AG Probe

New York attorney general Andrew Cuomo has granted Clayton Holdings immunity from prosecution in exchange for providing information on the due diligence work it conducted for Wall Street firms that securitized subprime mortgages over the past five years.

The immunity agreement gives AG Andrew Cuomo and his investigators a unique view of the underwriting standards and selection process issuers of mortgage-backed securities employed during the subprime boom.

Sources say one key issue AG Cuomo is looking at is underwriting "exceptions" granted by project managers working for Clayton on Wall Street accounts.

In a statement, Clayton chairman and chief executive Frank Filipps said his company has cooperated with the state AG's office since it was first subpoenaed in June. As reported by MSN, The Bohan Group, another underwriting firm that worked for Wall Street, also has been subpoenaed.

"Now, at the request of the New York attorney general, we have entered into a cooperative agreement with his office," said Mr. Filipps. The attorney general has granted Clayton immunity from civil and criminal prosecution.

The Shelton, Conn.-based company performs due diligence on loans originated for Wall Street conduits and identifies "exceptions" to the issuer's guidelines.

The AG's office has asked about loans with "exceptions" that were purchased by MBS issuers. "This information that we provided to the attorney general is the same information that we provided to our clients," Mr. Filipps said. Clayton general counsel Steve Cohen said a lot of subprime loans had exceptions that were placed in subprime MBS in 2006. "The exception rates were running about 30%," he said in an interview. He noted exceptions can be "meaningful" or "fairly benign." The due diligence firm also has a surveillance business that tracks and analyzes the performance of loans once they are securitized. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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