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FBI warns of mortgage fraud ‘epidemic’: Seeks to head off ‘next S&L crisis’

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Rampant fraud in the mortgage industry has increased so sharply that the FBI warned Friday of an "epidemic" of financial crimes which, if not curtailed, could become "the next S&L crisis."

Assistant FBI Director Chris Swecker said the booming mortgage market, fueled by low interest rates and soaring home values, has attracted unscrupulous professionals and criminal groups whose fraudulent activities could cause multibillion-dollar losses to financial institutions.

"It has the potential to be an epidemic," said Swecker, who heads the Criminal Division at FBI headquarters in Washington. "We think we can prevent a problem that could have as much impact as the S&L crisis," he said.

In the 1980s, many Savings and Loans failed because of poor management, risky loans and investments, and in some cases, fraud. Taxpayers were left with a $132 billion tab to cover federal guarantees to S&L customers.

This is the headline and first four paragraphs of a CNN article from 17 September 2004.

Where are the investigations, perp walks, convictions? So what happened to all that fraud?

It’s still ongoing.

Here’s the only investigation of a leading insider that I know about:

But, that was June of 2009. Have you heard anything about this?  I haven’t.

See Bill Black’s take on the fraud and the systemic response to it.  You should note that, while the FBI was concentrated on criminal gangs outside of financial institutions, Black believes the problem is the collusion of the financial institutions themselves in the frauds. Obviously, in an environment that relies largely on self-reporting by regulated institutions, there is no incentive to report, if much of the criminal activity is within those institutions.

The next four segments of the interview are available with this one here.

 

Sources

FBI: Mortgage fraud becoming an ‘epidemic’, 17 Sep 2004 – USA Today

Mortgage Fraud Operation "Quick Flip", 14 Dec 2005 – FBI

An American Epidemic: Mortgage Fraud–A Serious Business (book from 2005) – Amazon

Mortgage Fraud Epidemic: How the FBI Blew It and Why There’s No ‘Perp Walks’, 06 Apr 2009 – Tech Ticker

Mortgage fraud – Wikipedia

Epidemic Levels Of Mortgage Fraud Leading To Development Of Local Bubbles, 11 Feb 2010 – NuWire

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This entry was posted in Banana republic, Banking industry, Corporate governance, Guest Post, Real estate, Regulations and regulators on by .

About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward

28 comments

      1. velobabe

        yeah second your catch†
        jesse has been covering this amazing story of JPM fraud, and is quite perplexed why no MSM is even mentioneds this.

        News Coverage of the Maguire ‘Whistleblower’ Car Accident in the States

        A London-based precious-metals trader who had accused JPMorgan Chase of manipulating the gold and silver markets was involved in a bizarre weekend car accident that triggered a police chase before the suspect was nabbed.

        http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/31_GATA.html
        King World News Interview of Murphy – Douglas mp3

        1. Edward Harrison Post author

          I saw that this morning. Will definitely have it in the links at CW.

          Also, when RebelEconomist says:
          “Let’s be honest; while house prices were rising, it would have been unpopular to break up the party. Americans (and British) should stop blaming bankers and start looking in the mirror.”

          I say, that’s the point, isn’t it? The banks are allowed to do whatever they want because government has become their handmaiden. We need people in positions of authority who are willing to take on special interests before they cause a depression…

          oh I forgot, we are in the midst of one right now. All kidding aside, the US is going nowhere until we reduce the size and influence of the financial sector, full stop.

          1. velobabe

            not a chance, happening.
            i have to only reflect on authors and comments on my main daily blog reads. the same written anger appears everyday, but the difference between describing this anger in which it is discussed on NC = ZH. well, NC is just way to polite. i think for the most part NC readers respect each other and don’t want to offend. nobody is really holding back on ZH, much more torrent. just my 2¢s.

          2. Doug Terpstra

            Right on! That “look in the mirror” quip is more rigged-market, survival of the fittest blame-the-victim BS . That little guy in the mirror, one of the majority who didn’t lie about their income, is often a victim of the very predators whose very core business it is to understand LTV’s, elementary income verification, etc., as well as confusing jargon and legalease on half-inch thick documents designed explicitly to trap their victims in gotcha toxic loans. Thanks for debunking the nonsense. Folks like yuo and Yves are true heroes.

  1. PJM

    Nasty times for investors.

    Fasten your seat belt, the party is over. Markets are rigged but, soon or later, that stops and mr. Market comes back with revenge.

    Enjoy your trip. Interesting times, as chinese tell often.

  2. fiscalliberal

    Thank you for this timely reminder of this stuff. I sometimes wonder if other Democracy’s were pillaged like this. Christianity preaches “throw the money changers out of the temple”, so it was a phenomona 2000 years ago.

    In his books, Kevin Phillips talks about how the countries decline after the bankers get control. Happened in Spain, Netherlands, Britain and now us.

  3. Expat

    Please read my comment under the Fed article…I could cut and paste, but that would be too easy.

    Seriously, does anyone out there really believe that people will be put in jail beyond a few token minnows? Even Madoff went to jail because he simply admitted to everything in order to hide money, hide clients, and avoid embarrassing too many banks and officials.

    Any nation that cannot put Bush, Cheney, Rumsfeld, Rove, or Gonzales in jail is not going to persecute the Lords of Our Economy.

    Fuck you, America. You ain’t what you at least used to pretend to be! (mmm, was that too harsh? Is that the DHS knocking on my door?)

    1. eric anderson

      Oh, that’s nice, Expat. But why shouldn’t Obama be sharing a cell with Bush and Cheney? And Bawny Fwank, too, for that matter? Does it matter whether they were culprits or enablers? They either held the gun at the heist, or they drove the getaway car. They’re all part of the same crooked game. We know it. They know it. Don’t just be hatin’ on the GOP now. Wall Street gave more money to Democrats last go-round, and don’t think they haven’t gotten payment back, in orders of magnitude.

    2. Vinny

      We’ve made a note of your IP address, amd are momentarily sending via the Matrix over 10 copies of Agent Smith to beat the crap out of you. :)

      Sincerely,
      Captain Vinny

      1. Toby

        I’m probably alone in this, but I read “Adam Smith” not “Agent Smith.” This economics stuff is really getting to me…

  4. Anonymous

    Yves, this is important. Good job!!!

    If you want the refs to aggressively pursue the current criminal/fraudulent activities that have been perpetrated- shine a spotlight on the results of their past efforts. Much has recently been written about the numerous incompetent/impotent investigations conducted by the SEC. They weren’t the only ref/regulator to miss penalizing terribly egregious activities. The FBI and DOJ, among others, were probably just as incompetent in fulfilling their responsibilities. Just as in real football and hockey, the refs’ failure to make the calls, led to escalations in bad behavior that eventually caused the game to get completely out of hand.

    The only way to make sure these agencies are held accountable is to continue doing what you have been doing- i.e. broadcast stories of their incompetence to the masses and embarrass the living sh** out of them. This should help motivate these agencies to better enforce the rules in the future in the same way the threat of the NFL’s “instant replay” motivates refs not to miss the obvious calls.

  5. Bob Falfa

    The housing market was scammed at all levels on the way up, only fitting it should occur on the way down.

    JtR had an interesting video on his site a few days ago, several houses in one tract all selling around 1.2 Mil and in the midst of them was one that short sold for something like 800 k. Why should the banks care if Uncle Sugar makes it all better.

    http://www.bubbleinfo.com

  6. alex

    This is all due to a minor glitch in the Memory Hole. Those old headlines cited by thoughtcriminal Emmanuel Goldstein (aka Yves Smith) never existed. The Memory Hole has been fixed. Doubleplusgood!

  7. madamab

    What happened? Bush happened. Those were all his buddies who were screwing people to the wall in 2004. (Obviously Martha Stewart didn’t lunch with the right ladies at the time.) No way in the world his FBI was going to prosecute.

    Now, Obama is quite happy to follow in his predecessor’s footsteps. No accountability for the big guys, punishments and mandates for the little guys. It’s the robber baron way!

    Too bad there’s no Trust-Bustin’ Teddy Roosevelt to come riding to the rescue this time.

    1. alex

      Don’t blame it all on Bush – have you seen the Obama administration prosecuting many financial crooks? And useful precursors, like eliminating Glass-Steagall, CFMA and squashing derivatives regulation happened under Clinton (not to mention reappointing Greenspan).

      I’m a Democrat, but the “blame it all on Bush” idea is contrary to the facts. We’re not safe just because there’s a Democrat in the White House.

  8. NS

    Accounting and accountability? LOL! Goldman-Sachs revolving door in and out of regulatory/political positions anyone? Wonder what G-S is shorting now, could it be in the United States itself? After all, they are richly rewarded by doing Gawds work, NO? SOX wasn’t the answer obviously, you can be assured any other form of regulation won’t be either. Bill Gross’ language gets stronger and stronger n’est pas?

    Next up, more massive fraud in health insurance. You can see it now on TV! Just like those YEARS of slick 24/7 Countrywide commercials for 150% equity loans wasn’t an indicator? Got a heartbeat-get a loan. Lookie, lookie now with debt mitigation and mortgage refis. Buy that fake gold coin on TV and feel the warm fuzzy you’ve protected yourself against hyperinflation. Now it will be with your health. The FCC will blank a dirty word at 1 am or wardrobe malfunction but won’t touch the hucksters all over the airways that literally ruin peoples lives, like payday loans at triple-digit interest operated by the same big so-called banks? Its okay to sell big pharma to people who then demand it from their physician with overly rosy pictures of improvement for serious diseases, when it would be both dangerous and inappropriate (and very expensive). Those endless drug ads ramp up the price of RX medications for all, including the government but yeah, those 30 second ads are good for replacing the education and experience of a professional…health reform my rosy red.

    Buyer beware doesn’t even begin to describe any of it. We the people are merely commodities served up as fatted geese eating massive quantities of HFCS. Problem is, the remaining geese are getting skinny, then what? Lets all become MDs, market gurus and technical wizards in addition to our day jobs so we can make important life altering decisions that are fact based rather than ECONNED out of our jobs, homes, earnings and savings, health care after decades of paying in. Lets take the next step and let me write my own RX, K? That would be a really huge market to play. Biggest robbery in the history of man and no one has the SPINE to stop it.

    Fine, watch as people drop out and starve the beasts, either by choice or necessity.

    rant/

  9. Contrarian Pundit

    If you search some of the major offenders on PACER (e.g. Countrywide), you’ll find a lot of lawsuits trying to force the offender to repurchase loans that were fraudulently packaged. The FDIC (as bank receiver) is a plaintiff in many of the suits.

    But, no, I haven’t seen criminal prosecutions for mortgage fraud. Perhaps the burden of proof is high, when so many people were lying. Ultimately, the borrowers signed the documents.

  10. RebelEconomist

    Let’s be honest; while house prices were rising, it would have been unpopular to break up the party. Americans (and British) should stop blaming bankers and start looking in the mirror.

    1. velobabe

      your kidding, right? maybe your should use the sarcasm or irony mark. ¿ ¡
      dude, i look into the mirror every day and i don’t see fraud.
      i almost didn’t read this article because i saw jamie dimon’s mug shot, and i literally have to get sick to my stomach. he is the biggest con man on this earth.
      read this for more tidbits about the unblamable bankers.
      JPMorgan’s War on Nature
      How the Wall Street darling underwrites environmental Armageddon.
      http://motherjones.com/politics/2010/03/jpmorgan-mountaintop-removal-mining

  11. Tom Crowl

    The baby-boomers have managed to convincingly prove that American “Exceptionalism” is a myth…

    This old news story is a great reminder of that. There were plenty of people who saw this coming but this wasn’t a popular tale to tell.

    Those boomers LOVE their myths… all the way from being the precious ones believing they would save the world with “love” to becoming the most materialistic, self-indulgent and frankly easily led generation we’ve seen so far.

    Where’s the fellow with the ongoing closing comment re deception as the greatest weapon? He’s absolutely right! Especially when people are so intellectually lazy and willing to be deceived for a handful of beads (even beads on credit).

    Anybody wanna start a new system? This one is broken and the tinkering they’re doing is making it worse. Well, worse for everyone except the tinkerers.

    And that’s the point.

    P.S. I believe via a not TOO circuitous route its possible to, if not fix, at least build parallel systems for currency and credit creation which do not DIRECTLY threaten the current system and thereby provoke an ugly response.

    Civilizations are built by “social energy”… money is a tool. And a very messy one.

  12. Doug Terpstra

    Thank you, Ed. Indeed, all of it was foreseeable and foreseen. And the ongoing insanity is that those who failed to foresee it are still in charge!

    Only one case is even under investigation? Staggering! The Mozilo case is a year old now. Are they even close to bringing charges? Isn’t that Dodd’s buddy, and is that why it’s stalled? Another gaping “Quelle Surprise!”

    1. velobabe

      don’t get to excited tom. i do it all the time.
      sometimes have to say am i late to the party.
      your fun.

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