FBI warns of mortgage fraud ‘epidemic’: Seeks to head off ‘next S&L crisis’

Rampant fraud in the mortgage industry has increased so sharply that the FBI warned Friday of an "epidemic" of financial crimes which, if not curtailed, could become "the next S&L crisis."

Assistant FBI Director Chris Swecker said the booming mortgage market, fueled by low interest rates and soaring home values, has attracted unscrupulous professionals and criminal groups whose fraudulent activities could cause multibillion-dollar losses to financial institutions.

"It has the potential to be an epidemic," said Swecker, who heads the Criminal Division at FBI headquarters in Washington. "We think we can prevent a problem that could have as much impact as the S&L crisis," he said.

In the 1980s, many Savings and Loans failed because of poor management, risky loans and investments, and in some cases, fraud. Taxpayers were left with a $132 billion tab to cover federal guarantees to S&L customers.

This is the headline and first four paragraphs of a CNN article from 17 September 2004.

Where are the investigations, perp walks, convictions? So what happened to all that fraud?

It’s still ongoing.

Here’s the only investigation of a leading insider that I know about:

But, that was June of 2009. Have you heard anything about this? I haven’t (Update: 21 Oct 2010. We now know that Mozilo has got off with a money fine and a ban as a public company director but no fraud charges).

See Bill Black’s take on the fraud and the systemic response to it.  You should note that, while the FBI was concentrated on criminal gangs outside of financial institutions, Black believes the problem is the collusion of the financial institutions themselves in the frauds. Obviously, in an environment that relies largely on self-reporting by regulated institutions, there is no incentive to report, if much of the criminal activity is within those institutions.

The next four segments of the interview will be released with this one in an upcoming post.



FBI: Mortgage fraud becoming an ‘epidemic’, 17 Sep 2004 – USA Today

Mortgage Fraud Operation "Quick Flip", 14 Dec 2005 – FBI

An American Epidemic: Mortgage Fraud–A Serious Business (book from 2005) – Amazon

Mortgage Fraud Epidemic: How the FBI Blew It and Why There’s No ‘Perp Walks’, 06 Apr 2009 – Tech Ticker

Mortgage fraud – Wikipedia

Epidemic Levels Of Mortgage Fraud Leading To Development Of Local Bubbles, 11 Feb 2010 – NuWire


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.