Royal Bank of Scotland has been dragged into an investigation into whether underwriters of mortgage-backed bonds turned a blind eye to the possibility that many of the securities’ underlying home loans were facing default.

Andrew Cuomo, the New York attorney-general, has subpoenaed RBS and about 15 of Wall Street’s biggest sub-prime mortgage bond underwriters, such as Bear Stearns and Merrill Lynch, requesting information that will help to determine how much due diligence was conducted on the home loan-backed securities that they issued.

RBS is the seventh-biggest underwriter of US mortgage bonds this year, managing issues worth $52 billion, (£25.6 billion), giving it a 5.8 per cent share of the market, according to Thomson Financial.

Mr Cuomo is also examining the relationship between mortgage lenders, third party-due diligence firms, the credit rating agencies and the underwriting banks to see if they colluded to ignore risks.

Wall Street firms made hefty fees from buying high-risk sub-prime mortgages and packaging them into bonds backed by the home loans’ interest payments. Investors, including Wall Street giants such as Citigroup, as well as hedge funds and pension funds, have collectively lost more than $50 billion this year on sub-prime-backed bonds after a surge in defaults on high-risk home loans forced down their valuations.

Many of Wall Street’s underwriters relied heavily on third-party vendors to examine the home loans that were used to back the mortgage bonds. This helped them to determine how reliable an income stream the underlying mortgages would produce and, in turn, how likely it was that the bonds’ interest payments would be met.

Since bond underwriters have an obligation to make sure that the statements made in the securities’ offering documents are accurate, Mr Cuomo is investigating how much, if any, due diligence they conducted themselves. He is also seeking to determine whether they should have done more.

Mr Cuomo, who is also thought to have subpoenaed Lehman Brothers, Deutsche Bank and Morgan Stanley, declined to comment on the investigation, which may find that the underwriters’ behaviour regarding due diligence on the bonds they underwrote was perfectly reasonable.

The US Securities and Exchange Commission, America’s financial watchdog, is also thought separately to be examining Wall Street’s use of due diligence on the mortgage-backed bonds that it underwrote. However, its inquiry, part of a much broader investigation into America’s mortgage melt-down, is thought to be less advanced than Mr Cuomo’s.

The New York attorney-general’s subpoenas emerged a month after he announced an investigation into the sub-prime mortgage groups’ lending practices.

He is accusing lenders and brokers of inflating the value of properties to secure larger loans and said that he has e-mail evidence of banks seeking out “friendly appraisers” who would overestimate property values.

RBS, Bear Stearns, Merrill Lynch, Deutsche Bank, Morgan Stanley and Lehman Brothers all declined to comment.

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