[Becca/FL]

FBI Probing 14 Companies in Subprime Lending Crisis (Update1)

By Robert Schmidt

Jan. 29 (Bloomberg) -- The Federal Bureau of Investigation is investigating 14 corporations for possible accounting fraud and other crimes related to the subprime lending crisis, officials said.

Neil Power, chief of the FBI's economic crimes unit, wouldn't identify the companies, though he said the cases involve ``valuation-type stuff.'' The probes include reviews of subprime lenders, housing developers and Wall Street firms that package loans as securities, he said.

``We're looking at the accounting fraud that goes through the securitization of these loans,'' Power said at a briefing with reporters in Washington today. ``We're dealing with the people who securitize them and then the people who hold them, such as the investment banks.''

The probes add to federal and state scrutiny of the home- loan industry as prosecutors and regulators seek to assign culpability for the mortgage rout that has forced people from their homes and resulted in losses to investors. The biggest banks and securities firms have posted at least $133 billion in credit losses and write downs related to the loans, which are typically made to buyers with the weakest credit.

Separately today, Goldman Sachs Group Inc., Morgan Stanley and Bear Stearns Cos. said in corporate filings that they are complying with regulatory requests concerning investment products linked to home loans. The companies didn't specify which agencies asked for the information.

Civil Cases

The Securities and Exchange Commission, which brings civil cases, has about three dozen inquiries open, the agency's deputy enforcement director said earlier this month.

The FBI works ``hand-in-hand'' with the SEC, Power said today.

On subprime lenders, Power said the bureau has been ``looking over their books and of course there are some irregularities there that we're looking into.''

Power said another area of criminal inquiry is insider trading -- whether executives sold shares when they knew loan defaults were going to surge.

The FBI also investigates other mortgage-fraud crimes, most centering on individuals such as brokers, appraisers, realtors, developers or straw buyers who illegally obtain loans.

The bureau has 1,210 pending mortgage-fraud cases, officials said.

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Last Updated: January 29, 2008 17:56 EST

[kemet]

I know commentators like to blame "irresponsible, or stupid borrowers" for the sub prime mess. Actually they are looking at the wrong end of the telescope.

This was a massive "RICO" conspiracy between real estate brokers,mortgage brokers, appraisers, banks, Wall St brokerages, Bond insurers and rating companies, which ultimately devolved into a Ponzi Scheme to try to keep it going.

Anyone heard of someone making $10/hr being approved for a $300,000 loan? I know the woman in the Bronx, NY who got it. Her friendly mortgage broker put down her income, as a Sanitation Technician (read cleaning woman) in a hospital as $80,000 annually.

Or how about making up tax returns for a homeowner in Los Indios Texas, to support his refinance application on which his mortgage broker made, I believe about 10 points, between the origination points, discount points and YSP at 10.9% on a par of 6.5%

When people get sick and die from eating contaminated food from China, you don't blame the consumer.

I don't mean to absolve borrowers of any responsibility, they were not immune to greed, but Joe and Mary Sixpack do not have the clout to bring on what I believe will become the worlds' largest financial disaster. At least since the Great Depression.

The conspirators have violated some very basic moral tenants. There is a concept in the financial world known as Moral Hazard which basically says that you don't tempt people to do wrong. Also, they have violated the doctrine of suitability, which says you should not offer products to clients that are financially not suitable for their financial situation. DUH!

Look for Bear Stearns, one of the financial Alchemists responsible for spawning some of the riskiest mortgage derivatives to go under sometimes before June of this year.

The Savings and Loan scandal of the 80's resulted in about $125 Billion in losses. I can think of 8-10 banks and brokers alone that have already exceeded that figure and the Avalanche has barely picked up steam.

As Redd Foxx used to say on his TV show, Sanford and sons, "This is the Big One!"

Everybody hold on tight!

Bill