Mortgage analysis firm to cooperate in NY probe

By Patrick Rucker

WASHINGTON (Reuters) - Mortgage loan analysis company Clayton Holdings Inc <CLAY.O>, in an agreement with New York's attorney general, said on Saturday it would detail how Wall Street firms disregarded its warnings about the quality of home loans later sold to investors.

The company said in a statement it had "entered into a cooperation agreement" with the office of Attorney General Andrew Cuomo and would tell what it knows about how Wall Street sold mortgage investments despite warnings from Clayton the underlying home loans did not meet quality standards.

Clayton is the nation's largest due-diligence company hired by investment houses to make sure that blocks of loans conform to the seller's own standards. Investment houses may decide to accept or reject a due-diligence company's opinion on the quality of mortgage loans.

Several due-diligence firm executives have said they reported a slide in loan quality to their investment bank clients during the recent housing boom but that those mortgages were still bought up and passed on to investors.

"In some cases we felt that we were potted plants," Keith Johnson, president of Clayton Holdings, told Reuters in June.

Clayton was first subpoenaed in June by Cuomo in a wide-ranging investigation into the mortgage practices that helped spur a five-year housing boom that ended in 2006 and has now collapsed under a wave of foreclosures.

In its statement, Clayton said it had already handed over its reports on mortgage loans that were bundled and sold to investors as mortgage-backed securities.

"We have also been asked about loans that had exceptions to lenders/seller guidelines and were eventually purchased by MBS issuers," the statement reads. "This information that we provided to the Attorney General is the same information that we provided to our clients."