A U.S. Department of Justice subpoena issued July 28th to General Motors Financial Company, Inc. seeking documents related to originations and securitizations could be the tip of a broader investigation into the subprime auto industry’s underwriting practices.
GMF filed documents at the Securities and Exchange Commission detailing the subpoena Monday. The subpoena was issued by the US Attorney’s Office of the Southern District of New York, the nation’s center for ABS trading.
“Our understanding is that the request is focused on the subprime auto finance space in general,” GM Financial spokeswoman Chrissy Heinke told Auto Finance News. “There are no allegations set forth in the subpoena and GMF is cooperating with the request.”
According to the SEC filing , DOJ had ask the captive lender to turn over documents related to the company’s origination and the securitization of its auto loan contracts since 2007. The DOJ action is in connection to an investigation by the Feds in “contemplation of a civil proceeding for potential violations of Financial Institutions Reform, and Enforcement act of 1989.”
Legal experts say the DOJ request could signal more investigations of subprime auto companies that securitize their loans in the ABS market.
“DOJ may have their sights focused on subprime auto markets as it relates to representations on the quality of the loans in the securitization markets,” Kenneth J. Rojc, Managing Partner of Nisen & Elliott, LLC’s Automotive Finance Group in Chicago said. “That’s separate and distinct from rate participation issues or discriminatory lending practices.”
Rojc said in the past, DOJ focused primarily on the residential mortgage arena to investigate issues around financial fraud. He said this development potentially signals an expansion by the DOJ into the subprime auto lending markets.
The subpoena requests information relating to the underwriting criteria used to originate subprime automobile loan contracts and the representations and warranties relating to those underwriting criteria that were made in connection with the securitization of the automobile loan contracts.
A spokeswoman at the DOJ office in Manhattan could not comment further on the story.
