FBI Targeting Mortgage Industry Insiders

Mortgage fraud is on track to increase this year, though not much, according to congressional testimony today. Federal law enforcement officials who are tackling mortgage fraud are focusing their efforts on industry insiders.Through Feb. 28, there have been 28,873 Suspicious Activity Reports filed with the Federal Bureau of Investigation since the beginning of the fiscal year on Oct. 1, 2008, according to a prepared statement by FBI Deputy Director John S. Pistole. He was speaking today before the House Committee on Financial Services. SARs filings are on pace to reach nearly 70,000 by the end of the fiscal year on Sep. 30. Last month, Pistole reported to the Senate Judiciary Committee that 63,173 SARs were filed during fiscal 2008. Losses reported on just 7 percent of 2008’s SARs were $1.5 billion — suggesting that total losses on all SARs tied to mortgage fraud were in excess of $20 billion.

FBI photo of John Pistole

Mortgage fraud investigations in fiscal 2009 are more than 2,000. Investigations focus on people that work in the industry.“Industry insiders are of priority concern as they are, in many instances, the facilitators that permit the fraud to occur,” he explained.

Beginning in the late 1980s, the Department of Justice and the FBI were provided several tools to combat the savings and loan crisis, Pistole said. Among those tools were the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the Crime Control Act of 1990.

In addition, a series of strike forces based in 27 cities — which were staffed with 1000 FBI agents and forensic experts, as well as dozens of federal prosecutors — yielded more than 600 convictions and $130 million in ordered restitution.

But the $160 billion lost in the S&L crisis is dwarfed by the more than $1 trillion that has been written off so far by financial institutions during the current crisis.

“It would be irresponsible to neglect mortgage fraud’s impact on the U.S. housing and financial markets,” Pistole stated — adding that congressional testimony in 2004 from the law enforcement agency accurately predicted the calamity that systematic mortgage fraud would lead to.

He noted that mortgage fraud, through losses to investors of mortgage-backed securities, would ultimately result in higher interest rates.

Pistole called on Congress to force mortgage companies to report incidents of mortgage fraud. He also supported safe-harbor provisions that would protect whistle blowers. He said the agency has boosted the number of agents who investigate mortgage fraud to 254 as of Feb. 28 from just 120 in fiscal 2007. He warned, however, that FBI resources are strained with all the mortgage fraud, corporate fraud and financial institution failure cases.

He said there are 18 mortgage fraud task forces and 47 working groups operating across the country.

Related:

Mortgage Fraud Cases Double Losses tied to mortgage fraud were in the billions of dollars last year as open fraud investigations nearly doubled from two years earlier, according to FBI testimony today. Losses from the current financial crisis are expected to dwarf losses from the savings and loan crisis.