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Home Loan Probe Blankets Financial Services Industry

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By ALAN ZIBEL, The Associated Press

Published: January 30, 2008

WASHINGTON - The FBI on Tuesday said it is investigating 14 companies for possible accounting fraud, insider trading or other violations in connection with home loans made to risky borrowers.

Agency officials did not identify the companies under investigation but said the wide-ranging probe, which began in spring 2007, involves companies across the financial services industry, from mortgage lenders to investment banks that bundle home loans into securities sold to investors.

The FBI is working with the Securities and Exchange Commission on the corporate-fraud probe, said Neil Power, chief of the FBI's economic crimes unit in Washington.

As the nation's housing crisis worsens, more mortgage fraud cases are under investigation. An agency spokesman said 1,210 such cases are open, up from roughly 800 a year ago.

The announcement comes weeks after authorities in New York and Connecticut said they are investigating whether Wall Street banks hid crucial information about high-risk loans bundled into securities sold to investors.

Power said the FBI is looking into practices of so-called subprime lenders, as well as potential accounting fraud committed by financial firms that hold these loans on their books or securitize them and sell them to other investors.

Referring to certain unidentified bankrupt subprime lenders, Power said there are "some irregularities there that we're looking into," including the timing of stock sales by executives. Dozens of subprime lenders have filed for bankruptcy in the past year, most prominently New Century Financial Corp.

"We're looking at the executives to see if they were committing insider trading," Power said.

Power also said law enforcement officials are looking at whether homebuilders manipulated financial statements to inflate revenue.

An SEC spokesman declined to comment. The agency has said about three dozen investigations related to the mortgage market meltdown are ongoing. Defaults on subprime loans have risen during the past 12 months and are primarily responsible for the credit crunch that has disrupted global financial markets.

Morgan Stanley, Goldman Sachs Group and Bear Stearns Cos. disclosed in regulatory filings Tuesday that they are cooperating with requests for information from various, but unspecified, regulatory and government agencies. Officials at the companies either declined to comment, or could not immediately be reached.

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