U.S. probes big subprime lenders

Sources point to possible fraud

July 24, 2008|By Los Angeles Times

WASHINGTON - A federal grand jury in Los Angeles has begun investigating three of the nation's largest subprime mortgage lenders in the clearest sign yet that prosecutors are investigating whether fraud and other crimes contributed to the mortgage debacle.

Grand jury subpoenas have been issued in recent weeks and months to Countrywide Financial Corp., New Century Financial Corp. and IndyMac Federal Bank, seeking a wide range of information, according to sources with direct knowledge of the subpoenas.

People familiar with the situation told the Los Angeles Times that the subpoenas seek e-mail, phone bills and bank records, and that they follow interviews federal investigators conducted with employees and others knowledgeable about lending operations of the three Southern California institutions, which all collapsed under the weight of bad loans.

In the case of Countrywide, the sources said, investigators also have begun looking into media reports that the company and its former chairman, Angelo Mozilo, lavished mortgage breaks on members of Congress and other influential "friends of Angelo."

The investigations are part of a coordinated Justice Department effort that until now has focused primarily on smaller operators who defrauded homeowners and mortgage lenders.

The sources spoke on condition of anonymity because they were not allowed to speak publicly about the subpoenas.

The mortgage losses have regulators and law-enforcement personnel gearing up for what experts say could be the biggest financial fraud since the savings and loan crisis of the 1980s. Officials have said that they are beginning to investigate whether securities investors were defrauded about the value of subprime mortgages they purchased, along with other possible crimes such as insider trading by corporate officials who sold stock knowing that their holdings were about to lose value.

A spokesman for the U.S. attorney's office in Los Angeles, Thom Mrozek, declined to acknowledge that any of the companies were being investigated or had been issued subpoenas.

That office and the FBI in Los Angeles have been stepping up their scrutiny of mortgage companies. Last month, officials created a multiagency task force to address mortgage crimes, including representatives of the Internal Revenue Service, the U.S. Postal Inspection Service, the U.S. Housing and Urban Development Department and the Federal Deposit Insurance Corp.

Sharon Ormsby, chief of the financial crimes section at FBI headquarters in Washington, said the bureau is working closely with the Securities and Exchange Commission to identify culprits. The subpoenas to the three big mortgage lenders, the sources said, have been issued over a period of time and have focused on a variety of issues.

Countrywide, which grew to be the nation's largest mortgage lender, was recently acquired by Charlotte, N.C.-based Bank of America after suffering steep losses from a disastrous foray into subprime lending.

New Century, an early symbol of the mortgage boom and bust, has been operating under federal bankruptcy-law protection since April 2007.

The most recent subpoenas, the sources said, were served on IndyMac, which was seized by federal regulators this month. David Barr, a spokesman for the FDIC, which now runs IndyMac Bank, declined to comment on the subpoenas. Shirley Norton, a Bank of America spokesman, said company policy is to decline to comment on subpoenas.

Lawyers for New Century could not be reached for comment.

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