Feds Expand Mortage Fraud Investigation

You mean not following Federal banking laws is a crime? Who knew?!

"Federal agencies are intensifying a criminal investigation of the mortgage industry and focusing on whether some lenders turned a blind eye to inflated income figures provided by borrowers.

The Federal Bureau of Investigation and the criminal division of the Internal Revenue Service have formed a task force to examine mortgages that were made with little or no proof of the earnings or assets of borrowers, a government official who had been briefed on the matter said Sunday . . .

The task force, which was established in January, stepped up its investigation in recent weeks as the financial industry disclosed billions of dollars in additional write-downs from bad mortgage investments. The latest inquiry is broader and deeper than a separate F.B.I. investigation of mortgage lenders that is also under way . . .

In January, the F.B.I. began a wide-ranging investigation of 14 unnamed mortgage companies over their lending and business practices. Those smaller inquiries have tended to focus on local foreclosure schemes. That F.B.I.-led inquiry has since expanded to include several more firms. In March, the Justice Department and the F.B.I. began investigating whether the Countrywide Financial Corporation, the troubled mortgage giant, misrepresented its financial condition and loans in filings with the Securities and Exchange Commission."

No word about any investigations into Predatory Borrowing . . .


Tyler Cowen: "Predatory Borrowing The Bigger Problem"

Government Intensifies Mortgage Investigation 
NYT, May 5, 2008

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What's been said:

Discussions found on the web:
  1. Rob Dawg commented on May 5

    Casey Serin remains free. The FBI has no credibility on the matters of mortgage fraud.

  2. jb commented on May 5

    my experience….. several years back (after 2002), I was solicited at my bank for a “no cost” line of credit on my home. I filled out the papers and received a phone call a week later approving the 250K loan.

    Subsequently, I received another call asking for a copy of my tax return to verify my income. Not caring if I received the loan, I responded that I had already been approved and would not give them the requested info. I still received the line of credit even after refusing their request for the income verification ???!!!

    Fortunately for the bank, my application was factual!

    Oh yeah, the bank is one of the ” big three”



  3. UrbanDigs commented on May 5

    This whole thing is a disgrace. The entire system is fee driven, volume based, and geared for wall street financial innovations that lines pockets of executives. When the house of cards falls, fed steps in.

    I dont see why hedge funds/brokerage firms should not simply invent a new financial product, that takes advantage of loopholes and or areas of regulation that are coming to current products that no longer trade. The moral hazard that the fed has allowed, will lead to more of the same down the road.

    The fed just wont let markets correct, and wont let those firms that should die out or get bought out, fall to levels that would motivate a bankruptcy or sale.

    We are certainly in unprecedented times. Now the fed is accepting credit card receivables and auto loans as collateral. What has this organization come to? In an election year, its clear that politics is motivating some of these decisions, because god forbid stocks go down in an election year, or real data shows the economy slows is published, it may make Americans not spend or demand a change in policy.

    And we just cant have that. Pathetic!

  4. bdg123 commented on May 5

    The question of legality is improperly framed in many of these issues. The most egregious acts are not illegal. Because Wall Street lawyers wrote the bills passed into law to make them legal.

    The stench is overwhelming.

  5. UrbanDigs commented on May 5

    Moses – exactly. They wont let that happen. Too much counterparty risk, bond insurers would lose AAA rating, banks would have more writedowns, it would be counterproductive to everything the fed has tried to do to solve the credit crisis and keep lending flowing.

    They wont let it happen! Its not a free market. If it was, DOW certainly would not be above 13,000 right now in the face of the worst credit crisis in decades and worst housing collapse in many decades, and tightening credit and debt strapped consumer.

    Its an inflate, bail out, and get through the mess now and we’ll deal with problems later policy.

  6. DownSouth commented on May 5

    The message by now should be clarion, Jerry Wang’s ego-induced dementia being only the latest reminder:

    The public, the stockholders and the customers are unimportant, the CEO’s paycheck and ego are sovereign.

  7. Fred commented on May 5

    I imagine the investigation will have long legs and take as much time as Enron did but in the end it will redefine the brokerage industries, including the mortgage side as well as the NAR sales model. Real estate brokers are at the center of this and what will be the fallout is the commission driven model. There is a clear case against mortgage brokers as well as the lenders who managed the conduits but used the brokerage industry to “distance” themselves from fraud. Real estate brokers remind me of the stock brokerage industry of the 1970s and 80s – basically know nothings who add little to no value. The fees charged by the industry are criminal, flat out. The practices employed are at best sub-par. The era of part time real estate “advisors” who are under trained, under regulated and have no skin in the game, is over.

  8. UrbanDigs commented on May 5

    Fred – you touch on a very interesting topic. I fully agree that commission structure for re industry is antiquated and will change with down markets. Here in Manhattan, prices are not down much, but signs are flashing in rising inventory, reductions, and decline in buyer confidence.

    I’ll tell you this, I got 20+ requests in past year or so for flat fee buy side consulting. Hmmmmmm……….

  9. Barry Ritholtz commented on May 5

    Moses, your tiresome nonsense bores me to tears.


  10. AMIR EFRATI commented on May 5

    Federal prosecutors are stepping up their scrutiny of players in the subprime-mortgage crisis, with a focus on Wall Street firms and mortgage lenders.

    Prosecutors in the Eastern District of New York in Brooklyn have formed a task force of federal, state and local agencies that will involve as many as 15 law-enforcement agents and investigators.

    The U.S. attorney for the office, Benton J. Campbell, who supervises about 150 prosecutors, said the group will look into potential crimes ranging from mortgage fraud by brokers to securities fraud, insider trading and accounting fraud.

    Mr. Campbell said the “jury is still out” on just how much criminal activity the office might find, particularly on Wall Street, which saw a sudden decline in the value of securities backed by pools of mortgages last year. “There are market forces in play in that area, and that doesn’t necessarily mean there is fraud,” said Mr. Campbell, 41 years old.

    The formation of the task force amplifies efforts already under way in Brooklyn, where prosecutors are investigating whether investment bank UBS AG improperly valued its mortgage-securities holdings, as well as the circumstances surrounding the failure of two hedge funds at Bear Stearns Cos., which collapsed last summer because of losses tied to mortgage-backed securities. UBS and Bear Stearns have declined to comment on these investigations.

  11. Darkness commented on May 5

    A little late to the party, but it heartens me vaguely to see the FBI finally waking up. Their brand image is strong enough that I hope some people who at one time happily collected their commissions are at least sweating now.

    I remember an article years ago where the homeowners in a Georgia mcmansion neighborhood blighted by what they suspected was mortgage fraud were collecting their own evidence and trying in vain to get the FBI interested. Boy, it’d be nice to have proactive federal enforcement again… it would save a lot of tears.

  12. anon commented on May 5

    Shocked. SHOCKED!

  13. Dane Wayne commented on May 5


    About time but what’s the saying: “It’s a day late and a dollar short.” or in this case billions short.

    As previously posted the fee structure in this sector is absolutlely obscene.

    I agree, most real estate agents are worthless then tits on a boar hog.

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