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Tuesday, January 29, 2008

WSJ: More Criminal Inquiries into Mortgage Related Companies

by Calculated Risk on 1/29/2008 04:04:00 PM

From the WSJ: U.S. Probes 14 Companies In Subprime Investigation

Federal investigators have opened criminal inquiries into 14 companies as part of a wide-ranging investigation of the subprime mortgage crisis, focusing on accounting fraud, securitization of loans and insider trading ... The FBI wouldn't identify the companies under investigation but said that generally the bureau is looking into allegations of fraud in various stages of mortgage securitization, from those who bundled the loans, to the banks that ended up holding them.
This reminds me of Tanta's excellent piece last March: Unwinding the Fraud for Bubbles
There is a tradition in the mortgage business of distinguishing between two major types of mortgage fraud, called “Fraud for Housing” and “Fraud for Profit.” The former is the borrower-initiated fraud—inflating income or assets, lying about employment, etc.—that is motivated by the borrower’s desire to get housing (not the same thing as “real estate”), by means of getting a loan he or she doesn’t actually qualify for.
Fraud for profit is simply someone trying to extract cash—not housing—out of the transaction somewhere.
This new investigation is once again going after those involved in "Fraud for Profit", possibly with a new emphasis on those involved in the securtization process. See also this recent NY Times report by Jenny Anderson and Vikas Bajaj: Reviewer of Subprime Loans Agrees to Aid Inquiry