The FBI and Mortgage Crisis Fraud
The FBI has launched criminal investigations against 17 banking firms relating to the subprime mortgage crisis. Neil Power, section chief of the Economic Crimes Unit of the FBI declined to comment directly on the Bear Stearns bailout, but stated “Common sense would indicate that we would look at something that big. The problem is that banks weren’t doing their due diligence.” In earlier comments, Power had noted that the FBI was looking into “good old-fashioned greed.” It will likely be some time before the public sees major enforcement and criminal actions.
The FBI is especially suspicious of mortgage lenders and investment banks that bundled home loans into securities sold to investors for profit. The FBI is working with the Securities and Exchange Commission regarding corporate fraud. The agencies are investigating whether investment bankers hid important information about subprime loans that they bundled as investment instruments and sold.
The FBI noticed irregularities as well as accounting fraud by financial firms that securitized and sold subprime loan investment vehicles. Conflicts of interest in the mortgage industry were rampant. FBI is investigating Fannie Mae and Freddie Mac about billions of dollars in home loans that were purchased from banks. The mortgage crisis is not limited to large banking corporations. Fraudulent investors are also responsible for a large number of mortgage fraud schemes due in part to lax lending standards.
The FBI Criminal Investigative Division had 1,253 mortgage fraud investigations on March 19. The FBI is looking into all types of mortgage fraud and schemes around the country, including illegal property flipping, home equity schemes and check fraud cases. “The corporate fraud cases are pretty large entities,” adding that the time frame for FBI investigations could linger on for years. The FBI has admitted that most banking institutions had advance knowledge of the subprime mortgage crisis. Research reveals powerful indications were in place in mid-summer of 2007. The FBI was aware of problems before that time, opening a probe in the spring of 2007.
The FBI handles mortgage fraud cases of more than $500,000. FBI analysis indicates that the top ten mortgage fraud areas are California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Other areas significantly affected by mortgage fraud include Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia. There is a strong correlation between mortgage fraud and loans which result in default and foreclosure.
~ E. Manning