Holder to look into FBI report of mortgage fraud
WASHINGTON – Attorney General Eric H. Holder Jr. yesterday told a commission investigating the financial crisis that he would find out whether anything was done in response to an FBI warning in 2004 of an “epidemic of mortgage fraud” that could plunge the country into financial collapse.
Holder also said the diversion of hundreds of Justice Department and FBI officers to terrorism-related duties after the Sept. 11, 2001, terror attacks may have made it harder for his agency to investigate the kind of risky banking practices that led to the nation’s financial meltdown in 2008.
But he said that fighting white-collar crime had become a top priority for him and that more resources were being devoted to such cases.
Holder testified at the second day of hearings by the Financial Crisis Inquiry Commission, a 10-member panel created by Congress to explore the causes of the economic collapse.
Commission Chairman Phil Angelides grilled Holder over a Sept. 4, 2004, warning from a top FBI official about “an epidemic of mortgage fraud coursing across this country” and the dire crisis that could occur if it were left unchecked.
That was four years before the financial meltdown on Wall Street that led to unprecedented government bailouts of some of the nation’s largest banks and financial institutions.
Angelides, a Democrat and former treasurer of California, cited an undercover FBI investigation that discovered more than 380 fraudulent mortgage loans worth more than $70 million.
Angelides asked Holder about the reported “diversion of 5,000 white-crime investigators at the FBI” and whether that made it harder for the Justice Department to pursue financial-fraud cases.
Holder said the Sept. 11 attacks did divert many of the FBI’s investigators into terrorism-related activities. But he said his department had “made combating white-collar crime a priority” and was beefing up the number of investigators and prosecutors handling such investigations.
The panel also heard from Securities and Exchange Commission Chairwoman Mary Schapiro and others.
Schapiro told the panel that one of the problems contributing to the financial crisis was lax oversight of rating agencies. Agencies such as Moody’s Investors Service and Standard and Poor’s rate the creditworthiness of companies and securities. Many of the mortgage-related bonds that became toxic as the mortgages went into default and clogged up the nation’s financial system had been awarded top ratings.
Rating agencies “bear a lot of responsibility for products that got into investors’ hands,” Schapiro said. She said that the SEC was tightening its oversight but that “the fundamental problem is the business model,” presenting a built-in conflict of interest for the rating agencies. The agencies are paid by the companies whose securities they rate.
Published on 15/01/2010 21:02:47