FBI is pursuing 14 probes of lenders
The FBI is conducting 14 criminal investigations of mortgage lenders and the firms that turned their high-risk loans into complex securities that have left investors worldwide with huge losses, a top official at the federal agency said Tuesday.
“We’re looking at the whole range of those involved -- including the investment banks and other entities that bundled the loans up for sale and the institutions that held them and reported [to investors] on their value,” Neil Power, head of the FBI’s economic crimes unit, said in an interview from Washington.
The sub-prime lending investigations also extend to home builders, he said.
The principal focus of the probes is whether companies juggled their books to conceal problems with mortgages made during the frenzy of the housing boom. In some cases, Power said, agents are looking into whether corporate executives used inside knowledge of lending problems to benefit themselves at the expense of other shareholders.
The disclosure of the FBI inquiries highlights the barrage of legal troubles confronting the home-loan business as mortgage defaults and foreclosures rise ever higher and lenders and government policymakers struggle to keep millions of borrowers from losing their homes.
In another development that came to light Tuesday, a fired loan officer alleged that a joint venture between No. 1 mortgage lender Countrywide Financial Corp. and Los Angeles-based builder KB Home improperly inflated home appraisals and falsified incomes to put borrowers into homes they couldn’t afford.
Countrywide, which is being acquired by Bank of America after reporting a $1.6-billion net loss for the second half of 2007, said it had investigated the claims in a wrongful termination lawsuit filed by Mark Zachary, a former regional vice president for the joint venture in Texas. In a statement, the company said it “found no merit to his accusations” contained in a complaint filed in U.S. District Court in Houston.
Officials at the Securities and Exchange Commission are conducting more than 30 investigations into the mortgage meltdown. Erik R. Sirri, head of the SEC’s market regulation division, said recently that securities firms and banks sold “too many lottery tickets” tied to home loans and failed to look closely enough at their growing risks.
The FBI is looking at many of the same cases as the SEC, the agency said.
“There is a lot of overlapping,” Power said.
He declined to identify the companies being investigated, but at least one Southern California name already has emerged: Irvine’s New Century Financial Corp., a shuttered firm that once was the largest independent lender to borrowers with poor credit.
New Century sought bankruptcy protection last April from its creditors, chiefly the Wall Street firms that lent money to New Century, purchased its loans and pooled them to create bonds backed by mortgage payments.
In its filings with the SEC, New Century said in March that a federal criminal investigation was focused on how it accounted for losses when it was forced to buy back soured loans in 2006, and whether its executives profited by selling stock while misleading other shareholders. The company later said the SEC was investigating as well.
The FBI’s New Century probe is continuing, according to a federal source who spoke on condition of anonymity because he was not authorized to speak publicly about the case.
Countrywide and its chairman, Angelo Mozilo, are the subjects of one of “several large investigations” of mortgage lenders being conducted from the SEC’s Los Angeles office, an agency official said last fall. It wasn’t clear whether that probe was separate from a previously reported SEC inquiry into Mozilo’s stock sales.
Countrywide also has said it was cooperating with investigations by the attorneys general of California and Illinois. The Illinois case grew out of an investigation into a broker the state has charged with luring borrowers into loans they couldn’t afford.