Some of the largest players in the mortgage finance space have begun talks with the Securities and Exchange Commission trying to settle allegations the banks improperly marketed and sold mortgage-backed securities and collateralized debt obligations. The Wall Street Journal is reporting the parties are in the first stages of discussions and settlements may not be reached, according to unnamed sources familiar with the situation. The article said the regulator sent subpoenas to Citigroup (C), Deutsche Bank (DB), JPMorgan Chase (JPM), Morgan Stanley (MS) and UBS AG (UBS), although none of the firms have been formally charged. The SEC widened its regulatory scope and increased scrutiny of the sales of mortgage-backed securities as the financial crisis unfolded over the past few years. The WSJ article claims the banks created MBS and CDOs at the request of investors who then bet against the securities reaping the returns when the mortgage market crumbled. The regulator is probing whether the deals created conflicts of interest, according the article, which also reports the parties may be inclined to settle to stay away from the public battle the SEC waged with Goldman Sachs (GS). Over the summer, the venerable Wall Street firm settled civil charges by agreeing to pay $550 million. In April, the SEC charged Goldman Sachs with fraud alleging the firm structured and marketed a CDO that hinged on the performance of subprime RMBS. The regulator claimed Goldman Sachs failed to disclose the role a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO. Write to Jason Philyaw.