U.S. regulators have opened a new line of inquiry in their mortgage foreclosure probe and are asking big Wall Street banks about the beginning stages of mortgage securitization, two sources familiar with the probe told Reuters.

The Securities and Exchange Commission launched the new phase of its investigation by sending out a fresh round of subpoenas last week, the sources said. The recipients included some of the nation's biggest banks: Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co., they added.

Meanwhile, the states of Arizona and Nevada on Friday filed civil lawsuits, alleging that the lenders of misleading and deceiving homeowners who have tried to modify mortgages.

In his announcement, Attorney General Terry Goddard said Bank of America violated Arizona's fraud laws by misleading consumers who tried to reduce their monthly payments to keep their homes. The bank also violated the terms of a 2009 consent agreement requiring its Countrywide mortgage subsidiary to implement a loan modification program, the lawsuit alleges.

Hundreds of homeowners kept making their mortgage payments because Bank of America repeatedly assured them that their loans were being modified, Goddard said. Instead, many lost their homes anyway.

Nevada Attorney General Catherine Cortez Masto told the AP that its state's lawsuit was a last resort to try to get the bank to change its ways. It was filed after several discussions with bank managers led to assurances but little more.

"Clearly there is a disconnect between what Bank of America tells me at the management level and what's happening on the front line," Masto said.

Masto said separate lawsuits show the bank's problems with consumers are widespread.

"The only thing that I'm asking is that (Bank of America) give them a reasonable response in a timely manner," she said. "It is, in my perspective, a callous disregard for what we are telling them."

Nevada and Arizona are among the states hardest hit by homeowners who have defaulted on mortgages in the last few years as adjustable payments soared, people lost their jobs, and home values collapsed. One out of every 99 households in Nevada received a foreclosure notice last month, according to RealtyTrac Inc., and Arizona's rate wasn't far behind.

The SEC's subpoenas focus on the earliest stage of the mortgage securitization process, said the sources, who requested anonymity because the probe is not public.

The sources told Reuters that the SEC is asking for information about the role of so-called "master servicers" — specialized firms that oversee the selection and maintenance of the large pool of home loans that go into every mortgage-backed bond.

In many cases, Wall Street banks that underwrite mortgage-backed securities either own their own master servicing firms or are closely aligned with one.

msnbc.com news services

In the fall, the SEC began looking into the banks' foreclosure practices following allegations that mortgage servicers like Bank of America were using shoddy paperwork to evict delinquent borrowers from their homes.

The Justice Department, banking regulators and the attorneys general in all 50 U.S. states are also probing potential wrongdoing.

In the federal investigation, one source said the SEC is seeking information about the role banks had in mortgage securitization. The regulator is also looking at the role trustees for the trusts that issued the mortgage-backed securities had in monitoring the performance of the underlying loans.

The SEC is looking at whether loans were properly transferred to the trusts that issued the securities, the source said.

The renewed look at the securitization process is an extension of the SEC's preliminary probe into the mortgage mess. The SEC's regional offices are all looking at some aspect of the foreclosure crisis.

The SEC had no comment.

Bank of America, Citigroup, JPMorgan and Goldman had no comment. Wells Fargo said it is "always working with regulators and others who are interested in its servicing business" but declined to comment on whether the bank had received a subpoena.

msnbc.com news services
updated 12/17/2010