The people, who declined to be identified by name because the inquiry has not been publicly disclosed, described the examination as a routine part of the SEC's oversight authority and said it involved Goldman Sachs Group Inc., Merrill Lynch & Co. and several rival investment banks.
The Wall Street Journal reported the SEC's probe on Friday.
Trouble in the U.S. mortgage market, and a related credit crunch, has rippled across the globe. French bank BNP Paribas on Thursday suspended three securities funds valued at $2.75 billion, saying it could not value them accurately because of problems in the U.S. mortgage market.
Credit is drying up in the mortgage and corporate buyout markets after several years in which lending standards were loosened — too far, in retrospect, many experts say. With big mortgage-related losses affecting companies as diverse as German banks and Australian hedge funds, investors are uncertain about how far the problems will spread.
On Friday, stocks fell sharply even as the Federal Reserve tried to calm Wall Street by saying it will pump as much money as needed into the U.S. financial system. The European Central Bank has provided some $210 billion in funds to banks over the past two days, while Japan and Canada have also added liquidity.
SEC Chairman Christopher Cox disclosed in late June that the SEC had started about a dozen investigations related to complex aggregations of mortgage debt known as collateralized debt obligations, which investors around the world purchased in recent years.
For example, SEC officials have been examining the collapse of two Bear Stearns Cos. hedge funds that folded after making bad bets on the market for borrowers with weak, or subprime, credit.
John Nester, an SEC spokesman, declined to confirm or deny the SEC's latest activity, other than to say that placing a value on mortgage securities "is always a concern."
The investments trade infrequently and are difficult to price and difficult for many investors to understand, experts say, leading to uncertainty that has sent financial markets into tumult this week.
"Valuations are something that our inspection teams are absolutely focusing on when they do inspections," Nester said.
Josh Rosner, managing director of research firm Graham Fisher & Co., said SEC officials likely are looking at the assumptions that banks use in valuing mortgage securities see if they are reasonable.
Many of those models have quite a bit of subjectivity in them," he said. "However, if the market is saying it's worthless, it's worthless."
Shares of Goldman Sachs fell $2.81 to $179.44 in midday trading, while shares of Merrill Lynch fell 84 cents to $73.84.