New York and Connecticut are investigating whether Wall Street banks failed to disclose sufficient information about risks involved in investments linked to subprime loans, Connecticut's attorney general said.

    The new focus in existing probes of the United States mortgage industry is whether banks left out material details in their disclosures about the risks posed by extremely high-risk loans, deceiving credit-rating agencies and investors, Connecticut Attorney General Richard Blumenthal said yesterday.

    According to Bloomberg News, he said the states are also investigating lax underwriting standards.

    "The point is whether the banks knowingly withheld information so the disclosures may have been deceptive or misleading," Blumenthal said. "These questions are front and center in an ongoing investigation that has reached no conclusions."

    Defaults on subprime loans have led to bankruptcies of lenders of such mortgages, including New Century Financial Corp. Banks that packaged subprime loans as investments, such as Citigroup Inc and Bank of America Corp, may have to write down billions of dollars when they report their next earnings, analysts said.

    New York and Connecticut are among several states investigating the mortgage industry as foreclosures have risen cross the United States. Blumenthal said his office was cooperating with New York Attorney General Andrew Cuomo "as we always do when our investigations have similar interests."

    The New York Times reported earlier that Cuomo's and Blumenthal's new focus is on the disclosure of high-risk loans known as exceptions. The US Securities and Exchange Commission is also investigating the matter, the newspaper said.

    Jeffrey Lerner, a spokesman for Cuomo, would not comment on the investigation. Cuomo previously said he is investigating the subprime industry, including investment banks.    

    In November, Cuomo sued First American Corp, the largest US title insurer, claiming its eAppraiseIT LLC unit inflated home values under pressure from Washington Mutual.

    False appraisals can mislead investors about the risk of defaults in mortgage-backed securities by overstating the ability of troubled borrowers to sell their property or refinance to settle the debt.

    Cuomo also subpoenaed Fannie Mae and Freddie Mac, the two largest sources of US home loan financing, for information on whether loans they purchased were based on tainted property valuations as part of "widespread" industry collusion.

    Blumenthal said he had sent out an estimated 30 subpoenas to investment banks, ratings agencies and diligence companies. He said the boilerplate disclaimers banks used may have been "overbroad or useless to many investors" about the real risks posed by bundled, mortgage-backed loans.