FBI fraud probe grows to 26 companies

The FBI has expanded its investigation of potential fraud by companies involved in mortgage lending during the housing boom to include Fannie Mae, Freddie Mac, American International Group Inc. and Lehman Brothers Holdings Inc., the Associated Press reported.

Citing two anonymous law enforcement officials, AP said the FBI is now looking at 26 companies to determine whether any participated in accounting fraud, insider trading, or failing to disclose the true value of mortgage-related assets.

Securities and Exchange Commission Chairman Christopher Cox said Tuesday that the SEC has more than 50 ongoing investigations into the valuation of such assets.

Testifying at a Senate Banking Committee hearing on the Bush administration's proposal to borrow up to $700 billion to buy mortgage-related assets, Cox said the SEC investigations are focused on subprime lenders, investment banks, credit rating agencies, insurers, and broker-dealers who sold mortgage-backed investments to the public.

Fannie Mae and Freddie Mac were placed under government conservatorship on Sept. 7, and in a deal finalized today the government has taken a majority ownership stake in AIG in exchange for up to $85 billion in loans. Lehman Brothers filed for Chapter 11 bankruptcy protection on Sept. 11.

After New York Attorney General Andrew Cuomo began making headlines last year for his investigation of companies involved in packaging mortgages into securities for sale to Wall Street investors, in January the FBI briefed reporters on its own probe of 14 companies in the financial services, mortgage lending and investment banking industry (see Inman News story).

In the past, the FBI's mortgage fraud investigations mostly targeted borrowers who attempted to defraud lenders by inflating home prices.

In announcing the arrests of 406 people involved in 144 unrelated mortgage fraud cases from March to June, FBI Director Robert Mueller said the bureau indicted 321 people for mortgage fraud in 2007 and obtained 260 convictions (see story). Many of those cases involved mortgage fraud rings that used inflated appraisals and straw buyers to defraud banks and financial institutions, which reported 52,868 suspected cases of mortgage fraud in 2007.

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