Federal authorities have opened a criminal inquiry into Countrywide Financial for suspected securities fraud as part of the continuing fallout over the mortgage crisis, government officials with knowledge of the case said on Saturday. The Justice Department and the Federal Bureau of Investigation (FBI) are looking at whether officials at Countrywide, the nation’s largest mortgage lender, misrepresented its financial condition and the soundness of its loans in security filings. The investigation — first reported last month in the Wall Street Journal — was at an early stage at press time. It was unclear whether anyone will ultimately be charged with a crime.
As you know, the FBI is investigating 14 companies as part of a wide-ranging review of business practices in the mortgage industry. In that broader investigation, the FBI is looking into possible accounting fraud, insider trading, or other violations in connection with loans made to borrowers with weak, or subprime, credit. The inquiry into the companies began last spring and it involves companies across the financial industry, including mortgage lenders, loan brokers, and Wall Street banks that packaged home loans into securities.
As part of that investigation, the FBI is cooperating with the Securities and Exchange Commission, which is conducting about three dozen civil investigations into how subprime loans were made and packaged and how securities backed by those loans were valued. Several state prosecutors are also investigating mortgage industry practices. For the 2006 fiscal year, there were 35,600 documented reports of suspected mortgage fraud, up from 22,000 the year before and 7,000 in 2003. State officials have also been active in bringing mortgage cases. I am not certain how all of the investigations will turn out or what the ramifications will be. I am certain, however, that a failure to adequately regulate the mortgage lenders and those other groups that were a part of the whole package is largely to blame for the massive problems that are most apparent. I also believe strongly that the Bush Administration’s efforts to protect corporate wrongdoers have contributed to the overall problem.
Source: New York Times
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