FBI on mortgage meltdown: “We are not banking regulators”
This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.
In a letter to the Los Angeles Times, the FBI is defending its response to the wave of mortgage fraud, and rejecting the suggestion it could have done more to prevent the current mortgage crisis. The letter is in response to a Times story this week headlined ‘FBI saw threat of mortgage crisis,’ which reported that a top FBI official had warned in 2004 of widening loan fraud.
The FBI letter follows.
Dear Editor:
Your 8/25 story on the mortgage crisis (‘FBI saw threat of mortgage crisis’, L.A. Times, August 25th 2008) implied that if the FBI had made more arrests for mortgage fraud, the crisis could have been averted. To even suggest that is a cry for a lesson in both civics and basic economics.
The story’s premise was built around a 2004 quote from an FBI official who said he was confident the FBI could prevent fraud from becoming a massive problem. In context, Assistant Director Chris Swecker meant he believed the FBI could stay focused on mortgage fraud to prevent fraud from becoming the major driver that would cause a collapse of credit in the housing market. We believe by a good measure, the Bureau did that.
The FBI’s Criminal Division has arrested 1000 suspects and targeted 180 criminal enterprises since 2004. We targeted those lenders and buyers involved in multiple frauds or cases where the profits went to drug crews, gangs or organized crime. More investigations are ongoing. But the FBI is a law enforcement and intelligence agency, we are not banking regulators.
In the end, most economists have attributed the crisis to very aggressive lending practices and too little risk management throughout the financial services industry. As far as mortgage fraud was concerned the FBI had the right intelligence and provided the right warnings to the industry but fraud alone does not appear to be the straw that broke the mortgage camel’s back.
In the boom and bust of the mortgage business, to suggest that making more arrests would have averted the mortgage crisis is to confuse the root cause with the side-effects. It is not a fair or realistic assessment.
Kenneth KaiserAssistant DirectorCriminal Investigative DivisionFederal Bureau of Investigation
--Peter Viles
Photo Credit: FBI director Robert Mueller, via A.P.