FBI Launches Mortgage Probe

January 29, 2008 No Comments »

The FBI said today that it is investigating 14 companies for their role in the subprime mortgage crisis, looking at issues such as insider trading, accounting fraud, and the securitization of loans, the Associated Press reported.

The agency didn’t mention the companies by name, but said they include mortgage lenders, mortgage brokers, and Wall Street investment banks who packaged the loans into securities.

It’s clear that the FBI has launched a sweeping investigation of the entire industry, likely because fraud has risen significantly in recent years.

According to FBI officials, the bureau has 1,210 mortgage fraud cases under investigation, an increase of 50 percent over the last 12 months.

And that number will surely climb based on the number of so-called suspicious activity reports filed by banks and lenders.

The number of “SARs” documented by the FBI has increased from 35,000 in 2006 to 48,000 last year, and is expected to reach 60,000 in 2008.

The FBI said it only investigates cases involving losses of $500,000 or more, noting that 56 percent of all cases last year had losses of more than $1 million.

Sharon Ormsby, the financial crimes section chief in the FBI’s criminal investigative division, said, “We have observed that subprime loans are decreasing, but the suspicious activity reports we see…have noted that suspicions of mortgage fraud are increasing,”

“We anticipate in [2008] that another wave of adjustable rate mortgages will reset, and with that we anticipate the mortgage corporate fraud potential cases to increase based on our belief of potential accounting fraud, insider trading and other issues.”

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