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May 5, 2008 2:32 pm US/Eastern
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Fed Task Force Eyes Mortgage Lenders
NY Headed Special Task Force Formed To Examine Potential Fraud
NEW YORK (AP) ―
Federal authorities, responding to the subprime-mortgage crisis, have formed a special task force to examine potential fraud by lenders.
The task force 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 amid the housing market woes.
Robert Nardoza, spokesman for the U.S. Attorney's office in Brooklyn, confirmed a report on Monday that 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 told The Wall Street Journal that it was too early to say whether any white collar crimes had occurred.
"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 misdeeds 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., which filed for bankruptcy protection last summer. It went from being one of the 10 largest mortgage lenders in the country to insolvency in about a week amid the tightening credit market and demands for more collateral from its lenders.
American Home, like dozens of other companies, was left with no capital to operate as the secondary market for bonds backed by mortgages dried up. Investors fled that market after a spike in mortgage defaults.
There was no immediate response to a message left Monday with the company.
(© 2008 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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