Federal authorities are trying to determine if lenders or Wall Street firms went beyond recklessness to actual fraud.The task force investigating the issue will be headed by prosecutors in the Eastern District of New York, where one of the nation’s top mortgage lenders went bankrupt last year.Kevin Jursinski, a Fort Myers-based real estate attorney, said some of the practices engaged in during the subprime boom may have gone over the line.“There have been some conspiracy cases where the builder, the appraiser, the lender, all got together to pump up the price. Everybody made money on the deal; then they spin it off” and sell it as a mortgage-backed security.As a result, he said, fraud might be involved, Jursinski said. “It’s different from the traditional situation where a person took out a loan and can’t pay for it.”Robert Nardoza, spokesman for the U.S. Attorney’s office in Brooklyn, said a task force, comprised of federal, state and local agencies, would focus on the activities of mortgage lenders and Wall Street firms. He declined to give further details.U.S. Attorney Benton Campbell said it’s too early to say if actions that led to the subprime crisis rise to the level of a crime.“There are market forces in play in that area, and that doesn’t necessarily mean there is fraud,” he said.The task force includes representatives from the FBI, which announced earlier this year that it was investigating more than a dozen companies, from mortgage lenders to investment banks, for possible accounting fraud, insider trading and other potentially illegal actions related to subprime mortgage lending. One key question is whether Wall Street firms knew about the risks of mortgage securities backed by subprime loans, and if they hid risks from investors.Officials said the Brooklyn task force also includes investigators from the U.S. Postal Inspection Service, the state Department of Banking and the city Department of Investigation.
Prosecutors in Brooklyn already had been eyeing Long Island-based American Home Mortgage Investment Corp. The company filed for bankruptcy protection last summer, only about one week removed from being one of the 10 largest mortgage lenders in the country.Unlike New Century and most other bankrupt lenders, American Home Mortgage was not a subprime lender. Subprime lenders cater to home buyers with spotty credit. Almost none of American Home Mortgage’s $58.9 billion in home loans in 2006 year were to subprime borrowers.Yet as credit markets tightened, lenders came calling and American Home was suddenly unable to deliver as much as $800 million in promised loans. It laid off almost 90 percent of its 7,000 employees.— The Associated Press and The News-Press staff writer Dick Hogan contributed to this report
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