http://www.bloomberg.com/apps/news?pid=20601087&sid=aNSnhL5wGMck&refer=home -------------------------- California Investigates Subprime Mortgage Industry (Update1) By Karen Gullo March 29 (Bloomberg) -- California Attorney General Jerry Brown opened an investigation of the subprime mortgage industry, which made the state the largest U.S. market for high-risk home loans. Gareth Lacy, Brown's spokesman, said yesterday that the attorney general has an active investigation under way. Lacy wouldn't say which companies may be targeted or how far the probe has progressed. ``I think it's appropriate for the attorney general to take a look, especially if there's been abuses in lending practices,'' state Senator Mike Machado, a Democrat from Stockton, California, said in a telephone interview. ``There's a lack of scrutiny over the practices and the brokers engaged in originating some of these loans.'' Half of the 20 biggest U.S. subprime lenders, including No. 2 New Century Financial Corp., which is trying to avoid bankruptcy, are located in California, according to the newsletter Inside Mortgage Finance. The industry is under scrutiny by regulators after delinquencies on subprime mortgages rose to 13.3 percent last quarter, the highest since September 2002. About 13 percent of the U.S.'s subprime loans are in California, according to the Washington-based Mortgage Bankers Association. Predatory lending practices and improper disclosure of terms may violate state consumer-protection and fair-lending laws, Machado said. 30 Lenders At least 30 lenders have halted operations, gone bankrupt or sought buyers since the beginning of 2006 as defaults on subprime mortgages increased. Subprime loans, a term applied to some of the riskiest home mortgages, are made to borrowers with poor credit ratings or high debt burdens. Battling a wave of defaults by borrowers, Irvine, California-based New Century Financial said yesterday in a regulatory filing that it had signed agreements with officials in Idaho, Iowa, Michigan and Wyoming to stop lending in those states. More than a dozen states told the company to halt operations after consumers complained their loans weren't funded after being approved. Ohio Attorney General Marc Dann said in a statement yesterday that New Century had agreed to halt all foreclosures, pending a review of whether those foreclosures are legal. Laura Oberhelman, a New Century spokeswoman, said the company hadn't received an inquiry from the California Attorney General's office. Fremont General The No. 5 U.S. subprime lender, Santa Monica, California- based Fremont General Corp., was cited by federal regulators this month for giving loans to borrowers who were unable to repay them. Fremont, which also operates retail banking and commercial- lending businesses, shut its home-lending operations March 5, put employees on paid leave and hired Credit Suisse Group to sell the mortgage unit. People's Choice Home Loan Inc., based in Irvine, filed Chapter 11 on March 20. California previously investigated subprime lenders and was one of 49 states to share in a $325 million settlement with Irvine-based Ameriquest Mortgage Co. last year over claims that the company cheated customers by misrepresenting loan terms and getting inflated appraisals. Ameriquest, the sixth-largest U.S. subprime mortgage company, is a unit of closely held Orange, California-based ACC Capital Holdings Inc. To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net . Last Updated: March 29, 2007 13:52 EDT