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News of FBI investigating fraudulent mortgage practices as early as 2002-

Gee, what one finds reading around the web. Here, Karl Denninger posts about an article in the Seattle PI:

"The FBI was aware for years of "pervasive and growing" fraud in the mortgage industry that eventually contributed to America's financial meltdown, but did not take definitive action to stop it.

"It is clear that we had good intelligence on the mortgage-fraud schemes, the corrupt attorneys, the corrupt appraisers, the insider schemes," said a recently retired, high FBI official. Another retired top FBI official confirmed that such intelligence went back to 2002.

The problem, according to the two FBI retirees and several other current and former bureau colleagues, is that the bureau was stretched so thin that no one noticed when those lenders began packaging bad mortgages into bad securities."

The article goes on:

And Falvey said that financial executives who deliberately chose not to learn the facts about dicey mortgage-lending practices in their companies -- who chose to be "willfully blind" to such practices and the subsequent securitization of those mortgages -- could be vulnerable to prosecution for securities fraud.

Both retired FBI officials asserted that the Bush administration was thoroughly briefed on the mortgage fraud crisis and its potential to cascade out of control with devastating financial consequences, but made the decision not to give back to the FBI the agents it needed to address the problem. After the terrorist attacks of 2001, about 2,400 agents were reassigned to counterterrorism duties.

While it's not clear exactly when Bushies were briefed on this, it certainly seems to require investigations and Congressional hearings.

The FBI not only lacked the resources, but also never got the tips it needed from the banking regulatory agencies. The Securities and Exchange Commission, the Office of Thrift Supervision and the Office of the Comptroller of the Currency also failed to detect the securities issue, said the first retired FBI official.


Further complicating efforts to detect and prosecute mortgage fraud, banks and other mortgage lenders were making so much money from the constant churn of transactions and the continually escalating price of homes that the fraud that did arise simply didn't cost the industry enough money to raise their concerns.

"You had victim banks that would not acknowledge that they were victims," said the first retired FBI official. " 'We're not out any money,' they would say. Nothing has been foreclosed. The banks weren't reporting, the regulators weren't regulating and the FBI was concentrating on external mortgage fraud as opposed to the underlying internal problem."

And the administration's attention was turned to terrorism.

When FBI Director Robert Mueller was briefed on mortgage fraud, "his eyes would glaze over," the first retired FBI official said. "It was not something that he would consider a high priority. It was not on his radar screen."

Does anyone recall any MCM mentions of these things? There's more:

Public statements by one high FBI executive shows that the bureau was well aware of the potentially devastating impact of rampant mortgage fraud at least five years ago. The executive ominously foretold the crisis in testimony before Congress.

"Based on various industry reports and FBI analysis, mortgage fraud is pervasive and growing," Chris Swecker, then assistant director of the criminal investigation division, said in October 2004 before the House subcommittee on housing and community opportunity.

Then Swecker made a chillingly accurate prediction of the coming mortgage meltdown and financial collapse:

"The potential impact of mortgage fraud on financial institutions in the stock market is clear. If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market."

Swecker went on to describe the scenario that ultimately wrecked financial havoc around the world: "Often mortgage loans sold in secondary markets are used by financial institutions as collateral for other investments. ... When loans sold in the secondary market default and have fraudulent or material misrepresentation ... these loans become a nonperforming asset, and in extreme fraud cases, the mortgage-backed security is worthless. Mortgage fraud losses adversely affect loan-loss reserves, profits, liquidity levels and capitalization ratios, ultimately affecting the soundness of the financial institution itself."

Swecker declined recently to comment, other than to say, "My testimony in 2004 speaks for itself."

Who knew what about what when??

What other unintended consequences are there from scarce investigative resources being used to chase terra phantoms, set up stings of homeless men in Florida?

No votes yet


Nervine5's picture
Submitted by Nervine5 on

I'm shocked, "SHOCKED I TELL YOU! ". Being cynical is like being a 'Liberal"! or not.

How do I learn how to crochet?

I'm sorry,but, I want a 'V' to happen (Idealism and etc.). And I know it can never happen in this or any other surveillance society.

Well when I read 'The Handmaids Tale' a gazillion years ago, I 'Hmmmmm..ed' this is what is happening today ( 1980's)? and I talked to others in my group and they said yes its happening, but being a person that was overworked and having less time for family, I filed it.

But isn't it like the 'Ruling Overlords' want us to be?

bringiton's picture
Submitted by bringiton on

Maybe someone named Cuomo should look into it.