US sub-prime lenders under Federal probe

July 25, 2008
US sub-prime lenders under Federal probe
IndyMac, New Century and Countrywide face fraud investigation

(WASHINGTON) A federal grand jury in Los Angeles has begun probing
three of the nation's largest sub-prime 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, New Century Financial 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-mails, phone bills and bank records, and they
follow interviews that federal investigators have 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,' including Richard
Aldrich, an associate justice of the California Court of Appeal.

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 subpoenas, while indicating that the effort is still at an early
stage, show that the government is starting to take aim at the
largest lenders and their executives and whether they were complicit
in the billions of dollars that have been lost in the mortgage crisis.

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

The mortgage losses have regulators and law- enforcement personnel
gearing up in what analysts say looms as possibly the biggest
financial fraud since the S&L crisis of the 1980s.

Officials have said that they are beginning to investigate whether
securities investors were defrauded about the value of sub-prime
mortgages they purchased and other possible crimes such as insider
trading by corporate officials who sold stock knowing that their
holdings were about to deflate in value.

A spokesman for the US 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, along with the FBI in Los Angeles, however, have been
ratcheting up their scrutiny of mortgage companies.

Last month, officials created a multi-agency task force to address
mortgage crimes, including representatives of such agencies as the
Internal Revenue Service, the US Postal Inspection Service, the US
Housing and Urban Development Department and the Federal Deposit
Insurance Corp.

In a recent interview, Thomas P O'Brien, the US attorney in Los
Angeles, cautioned that fraud cases involved complex facts and
circumstances and were difficult to pursue. But he also indicated
that the office would move forward aggressively in appropriate
circumstances.

'As with any white-collar case, these tend to be extremely complex
and take years to investigate,' Mr O'Brien said.

'But this is a very high priority for me in this office and the
Department of Justice.'