FBI Investigation Widens Subprime Probe

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Fearless W got his G-men after `em...

Mueller: 'Subprime Debacle' Probe Expanded
April 16, 2008 - FBI Director Says 19 Lending Institutions Under Investigation

The FBI has again expanded its probe into the subprime mortgage collapse and is now investigating 19 lending institutions, bureau director Robert Mueller told lawmakers today. Appearing before a Senate Appropriations subcommittee, Mueller told the panel that there has been a "surge related to the subprime debacle." The investigation has been growing since January, when the FBI began looking at 14 firms. That number rose to 17 last month.

Officials have declined to name the companies that are under scrutiny, but two Justice Department officials confirmed reports that Countrywide Financial, the nation's largest mortgage lender, is a subject of the probe. Justice Deptartment officials have declined to comment on whether collapsed investment bank Bear Stearns, which JPMorgan Chase & Co. agreed to purchase last month, is under the FBI's watch, but federal filings submitted by the bank in January indicated a possible probe. Some of Bear's hedge funds invested heavily in subprime lending markets, and the Jan. 29 filing acknowledged that federal and state "regulatory and law enforcement authorities" had inquired about one such fund.

Mueller said the FBI is working more than 1300 mortgage fraud investigations, and pledged that the bureau will "work down systemic economic fraud." Mueller acknowledged that the increasing number of claims being investigated has put a strain on the bureau, telling the senators at the budgetary hearing that the FBI "will need additional resources" to handle the increased case load.

More ABC News: Mueller: 'Subprime Debacle' Probe Widened

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FBI Braces For Spike in Corporate Fraud...

Mueller Expects More Corporate Fraud Cases
April 18, 2008 - FBI Director Says He Expects a 'Ripple Effect' from the Subprime Crisis

The number of corporate fraud cases the FBI investigates is set to rise as part of the fallout from the subprime mortgage collapse, director Robert Mueller said today. "We likely will see more corporate fraud cases in the months to come because of the ripple effect of the subprime crisis and its impact on the credit market," Mueller said in a speech to the American Bar Association.

During the wide-ranging speech on corruption and white collar crime, Mueller briefly expanded on remarks made the day before confirming that the FBI is investigating 19 institutions relating to the subprime lending crisis and the financial and investment vehicles used by those firms. "We are targeting accounting fraud, insider trading and deceptive sales practices," Mueller said. "These investigations may well lead to other instances of fraud from investment banks and private equity firms to hedge funds."

The FBI director talked about his previous experience in the private sector as a defense lawyer before the ABA's litigation lawyers' annual conference in Washington, D.C. "I saw executives who did not start out intending to break the law," he said. "They would argue they were playing by the same rules as everyone else. They began to believe their own explanations. But it is a slippery slope from behavior that skirts ethical or legal boundaries to behavior that crosses the line completely."

The FBI has begun to task more agents and field offices to work on financial crime matters. The bureau has about 200 agents working on mortgage fraud investigations. Wednesday, members of the Senate Appropriations committee expressed concerns that the FBI was not providing enough resources to deal with the increasing number of mortgage fraud cases and the recent trend toward reverse mortgages, which are targeting the elderly and recent retirees.

More ABC News: FBI Braces For Spike in Corporate Fraud

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Wachovia caught up in the dragnet...

Feds look at Wachovia in drug money probe
April 26, 2008: The bank is being investigated by prosecutors as part of a probe into alleged drug money laundering by Mexican and Colombian money-transfer companies, according to the Wall Street Journal.

Wachovia Corp. is being investigated by Federal prosecutors as part of a probe into alleged drug money laundering by Mexican and Colombian money-transfer companies, according to a Wall Street Journal report Saturday morning. A Wachovia official said the bank is cooperating in the probe, which is also scrutinizing several other large U.S. banks, according to the newspaper. The bank severed its ties to these money transfer firms in December and January, when the investigation began.

The U.S. banking industry has pursued a foothold in the remittance industry, which transmits more than $50 billion from the U.S. to Latin America annually - primarily on behalf of immigrants sending money back to their families. The industry charges high fees to transfer these funds. But, the Journal said, remittance outfits can also be used by narcotics traffickers seeking to move the proceeds of drug sales between the U.S. and Latin America.

Tough times

The probe comes at a difficult time for the bank, which announced on Friday that it will pay $144 million to settle federal charges that it failed to stop telemarketers from taking advantage of thousands of elderly consumers. On April 14, the North Carolina-based bank posted a $350 million loss in the first quarter -its first quarterly loss since 2001. Wachovia took a $2 billion charge for "market-disruption" losses in the quarter, and also signaled difficulties with Golden West Financial, which Wachovia acquired in 2006 for $24.6 billion.

Golden West was a leading issuer of so-called option adjusted rate mortgages (ARMs) - loans that give borrowers the right to pay less than the full bill. Wachovia boosted its reserve for possible loan losses on Golden West's portfolio, valued at roughly $120 billion, to $1.1 billion, as late payments nearly doubled to 3.1% of the loans. In the wake of these problems, the bank cut its dividend and said it plans to raise $7 billion in capital.

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Wachovia Fined Millions for 'Unsound Practices'
April 25, 2008 - Treasury Dept. Orders Wachovia to Pay More Than $140 Million

Wachovia Bank will pay tens of millions of dollars for having "engaged in unsafe or unsound practices" in connection with telemarketing fraudsters, the U.S. Treasury announced Friday. Without admitting or denying wrongdoing, the bank agreed to pay as much as $125 million in restitution to consumers who were harmed by scams perpetrated by five firms and have not already been reimbursed, the Treasury announcement said. Wachovia will also pay nearly $9 million for consumer education programs and a $10 million civil penalty to the Treasury Department.

Treasury said it believed that thousands of consumers, many of whom were elderly, were harmed by the millions of dollars in fraudulent transactions telemarketing scammers processed through Wachovia. The bank was not directly involved in the scams but made millions in processing fees on the transactions. Those fees, plus $5 million, will comprise the bank's contribution to consumer education programs. The bank has also agreed to draw up new policies to better oversee the kinds of transactions, known as remotely created checks, which figured into the fraud schemes.

"Financial fraud of this type is an insidious scourge that preys upon a vulnerable population of Americans," said Rep. Edward Markey, D-Mass. While pleased a settlement had been reached, Rep. Markey expressed concern that victims had to "file claims in order to be reimbursed" and called on the Office of the Comptroller of the Currency (OCC) to develop a way to identify the victims instead. The Treasury Department had been investigating Wachovia for a year and a half, it said in its announcement Friday. The bank alerted its shareholders to the probe in February. Ten days ago it announced it was likely to pay some form of restitution as a result of the investigation.

More ABC News: Wachovia Fined Millions for 'Unsound Practices'

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Lotta hot air but nothing substantial...

Subprime criminal probes yet to catch big fish
Mon Jun 9, 2008 WASHINGTON - More than a year into a U.S. housing market meltdown, prosecutors have yet to bring major cases against mortgage industry leaders -- and the slump's worst may pass before any charges are filed.

After the FBI revealed in January that it was looking into possible mortgage-related corporate crime such as accounting wrongdoing or insider trading at 14 major companies, the number of firms under scrutiny has grown to 19 but developments have slowed to a trickle. Separately, federal authorities are probing about 1,200 cases of individual mortgage scams.

Just because authorities have proceeded quietly does not mean the probes have stalled. Legal experts say complex financial frauds can take years to investigate before prosecutors make a decision on whether they have a case. And outlines of the government's strategy are taking shape. The FBI and U.S. Department of Justice say they are examining some major industry executives in their investigations, with FBI Director Robert Mueller saying the bureau is working to identify "large-scale industry insiders" in its probes.

But the prospect is unlikely of a major federal task force zeroing in on a large company, as with the special group created several years ago to investigate the collapse of Houston-based energy trader Enron. However, the Justice Department has created a mortgage fraud working group to oversee issues such as standards for measuring losses and establishing a central storehouse for mortgage documents.

Authorities also are unlikely to look to force companies out of business through criminal charges, well aware of the many job losses spurred by the demise of accounting firm Arthur Andersen after it was indicted over its dealings with Enron. The subprime meltdown began more than a year ago, gaining momentum with the April 2007 bankruptcy of New Century Financial Corp NEWCQ.PK, which once epitomized the boom in extending home loans to borrowers with weak credit histories.

More Subprime criminal probes yet to catch big fish | Special Coverage | Reuters

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The VIP Treatment: Countrywide CEO Offers Better Rates for Prominent Few...

Countrywide's Better Rates for VIPs
June 13, 2008 - Senators Chris Dodd and Kent Conrad Reportedly Received Favorable Rates on Loans

Friends of Countrywide Financial CEO Angelo Mozilo and other high-profile individuals had their home loans handled by the company's VIP desk, where a team of loan officers would work out favorable terms in conjunction with Mozilo, according to two former Countrywide executives. "Celebrities get their loans from somewhere," said one former executive who likened the favorable loans to employee discounts. "That desk handled loans for people who were referred by executives. The way that it would customarily work is he [Angelo] might call in, 'What can we do? What are we charging on this or that?' and then tell [his friend] 'I'll get you that at X. Don't worry. I'll get you the loan."

Some of the beneficiaries didn't even know that they were receiving special benefits; others may have been aware that they were receiving some kind of discount, according to the former executives. Internally, those whom Mozilo favored for special treatment were referred to as "Friends of Angelo." The executives say that he was in frequent contact with the company's VIP desk. Those VIPs who received loans through the program that waived points, lender fees and company borrowing rules included Senators Chris Dodd and Kent Conrad, former HUD Secretary Alphonso Jackson, former HHS Secretary Donna Shalala and former UN ambassador Richard Holbrooke, according to Conde Nast Portfolio magazine.

For these VIPs, Countrywide would reduce the interest rate on their loans by waiving at least half a point and eliminating fees for underwriting, processing and document preparation, reports Portfolio. Senator Dodd reportedly received two loans in 2003 through the program, borrowing $506,000 and $275,042 to refinance homes in Washington and East Haddam, Connecticut. Countrywide waived $2,000 on the first loan and $700 on the second, according to Portfolio.

More ABC News: Countrywide's Better Rates for VIPs

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Senator Says Loan Favoritism Is Possible
June 15, 2008 - Senator Kent Conrad, Democrat of North Dakota, said Saturday that he would donate $10,500 to charity and refinance a property loan after suggestions that he and other prominent Washington figures received preferential treatment from Countrywide Financial Corporation.

Though Mr. Conrad, chairman of the Budget Committee, said he was not aware of any favoritism shown by the lender that has come under scrutiny in the mortgage crisis, he said a review of e-mail traffic suggested that the loan fee for a beach house may have been reduced because of his status, while a second loan called for an exception by the company. “Although I did not ask for or know that I was receiving a discount, and even though I was offered a competitive loan from another lender, I do not want to have received preferential treatment,” said Mr. Conrad, who said he was giving $10,500 to Habitat for Humanity. The amount was equivalent to estimates of what Mr. Conrad saved through a reduction of one point on a $1.07 million mortgage.

The dealings of Countrywide with Washington officials have come to light in the past week after James A. Johnson, a former head of Fannie Mae, was forced to give up an influential advisory role with the presidential campaign of Senator Barack Obama following suggestions that Mr. Johnson got special treatment from Countrywide. Mr. Johnson was leading the search for a vice-presidential candidate. Mr. Conrad and Mr. Johnson, as well as other notable Washington figures including Senator Christopher J. Dodd, Democrat of Connecticut, were apparently beneficiaries of the mortgage lender’s V.I.P. program, known informally as the “Friend of Angelo” program for Angelo Mozilo, the chief executive officer.

Mr. Conrad said Friday that Mr. Johnson had put him in touch with Mr. Mozilo when he was seeking a loan for a home he was buying in Bethany Beach, Del. E-mail messages initially obtained by the Web site Portfolio.com showed that Mr. Mozilo told employees to “take off 1 point” when granting the loan. He also told them to approve a $96,000 mortgage for an eight-unit apartment building Mr. Conrad was buying in Bismarck, N.D., though the company typically provided mortgages for buildings with four or fewer units.

More http://www.nytimes.com/2008/06/15/us/15loans.html?hp

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Bear Stearns Execs Could Face Charges...

Charges May Come Against Ex-Bear Stearns Execs: Report
June 16, 2008 - Two Former Bear Stearns Execs Could Be Charged With Securities Fraud

U.S. prosecutors are preparing to file criminal charges against managers of two Bear Stearns hedge funds whose collapse helped kick off the credit crisis last year, the Wall Street Journal reported on Monday. The U.S. Attorney's office in Brooklyn, New York will conclude interviews this week and has indicated to lawyers that indictments may follow, the newspaper said, citing people familiar with the case.

Former bond portfolio managers Ralph Cioffi and Matthew Tannin could be charged with securities fraud within the next week, according to one of people familiar with the matter. There was no indication that charges would be filed against Bear Stearns, which was acquired by J.P. Morgan Chase, or its top management, the newspaper said.

Tannin declined to comment, and neither Cioffi nor representatives for Bear Stearns could be reached for comment. A spokesman for JPMorgan and a spokesman for the U.S. Attorney for New York's Eastern District were not immediately available.

ABC News: Bear Stearns Execs Could Face Charges

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Granny says he's a good lookin' man - but she ain't buyin' it...

Senator Viewed Mortgage Treatment as a ‘Courtesy’
June 18, 2008 WASHINGTON — Senator Christopher J. Dodd of Connecticut said Tuesday that he was aware that Countrywide Financial Corporation had assigned him to a V.I.P. program in 2003 when he refinanced mortgages on his homes in Connecticut and Washington but that he and his wife “assumed” that “it was more of a courtesy thing.”

Mr. Dodd insisted that they did not get favorable pricing. As the Senate prepared to take up legislation intended to rescue homeowners at the brink of foreclosure, Mr. Dodd, a Democrat and chairman of the banking committee, defended himself against suggestions that he had received preferential treatment from Countrywide. At a tense news conference, he flatly denied seeking or receiving any discount from the lender.

But his concession that he never inquired or even wondered whether his special status with Countrywide might be related to his position as a senator prompted a barrage of new questions about the terms of his mortgages and about exactly what he knew and when he knew it.

“Somebody told you you were in a V.I.P. program,” a reporter said, “And you didn’t think you were getting ... ” Mr. Dodd cut off the reporter and finished the question himself. “A special deal on a loan?” the senator asked. “No.”

More http://www.nytimes.com/2008/06/18/wa...dd.html?ref=us

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Scammers busted...

FBI Cracks Down On Mortgage Fraud
WASHINGTON, June 19, 2008 - 400 Real Estate Industry Players Indicted; Victims Lost More Than $1 Billion In Various Schemes

More than 400 real estate industry players have been indicted since March - including dozens over the last two days - in a Justice Department crackdown on incidents of mortgage fraud nationwide that stem from the country's housing crisis. The FBI put the losses to homeowners and other borrowers who were victims in the schemes at over $1 billion. "Mortgage fraud poses a significant threat to our economy, to the stability of our nation's housing markets and to the peace of mind of millions of American homeowners," Deputy Attorney General Mark Filip said at an afternoon news conference.

Sixty people were arrested Wednesday as part of the three-month sting, dubbed "Operation Malicious Mortgage," reports CBS News producer Robert Hendin. People arrested include buyers, sellers and others across the wide-ranging mortgage industry. The take down focused primarily on lending fraud, foreclosure rescue scams and mortgage-related bankruptcy schemes. Since March 1, 406 people have been arrested in the sting resulting from 144 cases across the country, including those in Chicago, Miami, Houston and a dozen other regions policed by the FBI.

Law enforcement officials said their stepped-up focus on mortgage cases aims to combat problems that have grown out of the risky lending practices prevalent until the mortgage market collapse started last year. Officials have identified 10 "mortgage fraud hotspots" nationwide in California, Colorado, Texas, Minnesota, Michigan, Illinois, Ohio, New York, Georgia and Florida. Seven people in Atlanta are charged with taking out $150,000 loans on $30,000 condos, reports CBS News correspondent Bob Orr; a Miami couple is accused of using phony loans to pocket nearly $8 million; and in Baltimore, four people are charged with bilking millions from struggling homeowners who tried to buy "protection" from foreclosure.

More FBI Cracks Down On Mortgage Fraud, 400 Real Estate Industry Players Indicted; Victims Lost More Than $1 Billion In Various Schemes - CBS News

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Banking scheme backfires...

Mortgage ruling could shock U.S. banking industry
Mon Jun 30, 2008 - A lawsuit filed by a Wisconsin couple against their mortgage lender could have major implications for banks should a U.S. appeals court agree that borrowers can cancel their loans en masse when their lenders violate a federal lending disclosure law.

The case began like hundreds of others filed since the U.S. housing boom spawned a rise in sales of adjustable rate loans. Susan and Bryan Andrews of Cedarburg, Wisconsin, claimed that lender Chevy Chase Bank FSB had hidden the true terms of what they believed was a good deal on a low-interest loan.

In their 2005 lawsuit, the couple said the loan's interest rate had more than doubled by their second monthly payment from the 1.95 percent rate they thought was locked in for five years. The interest rate rose well above the 5.75 percent fixed-rate loan they had refinanced to pay their children's college tuition.

The Andrews filed the case seeking class action status; and in early 2007, U.S. District Judge Lynn Adelman ruled that the bank had violated the Truth in Lending Act, or TILA, and that thousands of other Chevy Chase borrowers could join them as plaintiffs.

The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S. banking industry by also finding that the borrowers could force the bank to cancel, or rescind, their loans. That decision was stayed pending an appeal to the 7th U.S. Circuit Court of Appeals, which is expected to rule any day.

The idea of canceling tainted loans to stem a tide of foreclosures has caught hold in other quarters; a lawsuit filed last week by the Illinois attorney general asks a court to rescind or reform Countrywide Financial Corp mortgages originated under "unfair or deceptive practices."

'MASSIVE CLASS SUITS'

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Uh-Obama...

Obama Got Discount on Home Loan
Wednesday, July 2, 2008; Campaign Defends Lower Rate as Lender Competition for Business

Shortly after joining the U.S. Senate and while enjoying a surge in income, Barack Obama bought a $1.65 million restored Georgian mansion in an upscale Chicago neighborhood. To finance the purchase, he secured a $1.32 million loan from Northern Trust in Illinois. The freshman Democratic senator received a discount. He locked in an interest rate of 5.625 percent on the 30-year fixed-rate mortgage, below the average for such loans at the time in Chicago. The loan was unusually large, known in banker lingo as a "super super jumbo." Obama paid no origination fee or discount points, as some consumers do to reduce their interest rates. Compared with the average terms offered at the time in Chicago, Obama's rate could have saved him more than $300 per month.

Obama spokesman Ben LaBolt said the rate was adjusted to account for a competing offer from another lender and other factors. "The Obamas have since had as much as $3 million invested through Northern Trust," he said in a statement. Modest adjustments in mortgage rates are common among financial institutions as they compete for business or develop relationships with wealthy families. But amid a national housing crisis, news of discounts offered to Sens. Christopher J. Dodd (D-Conn.), chairman of the banking committee, and Kent Conrad (D-N.D) by another lender, Countrywide Financial, has brought new scrutiny to the practice and has resulted in a preliminary Senate ethics committee inquiry into the Dodd and Conrad loans. Within Obama's presidential campaign organization, former Fannie Mae chief executive James A. Johnson resigned abruptly as head of the vice presidential search committee after his favorable Countrywide loan became public.

Driving the recent debate is concern that public officials, knowingly or unknowingly, may receive special treatment from lenders and that the discounts could constitute gifts that are prohibited by law. "The real question is: Were congressmen getting unique treatment that others weren't getting?" associate law professor Adam J. Levitin, a credit specialist at Georgetown University Law Center, said about the Countrywide loans. "Do they do business like that for people who are not congressmen? If they don't, that's a problem."

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