Page 44 - untitled

BEFORE OUR VERY EYES 

Investment & Loan, the nation’s eighth-largest subprime lender. “Don’t put your nose
where it doesn’t belong,” he was told. 
Crabtree took his story to state law enforcement officials and to the Federal Bu-
reau of Investigation. “I was screaming at the top of my lungs,” he said. He grew infu-
riated at the slow pace of enforcement and at prosecutors’ lack of response to a
problem that was wreaking economic havoc in Bakersfield. 
At the Washington, D.C., headquarters of the FBI, Chris Swecker, an assistant di-
rector, was also trying to get people to pay attention to mortgage fraud. “It has the po-
tential to be an epidemic,” he said at a news conference in Washington in . “We
think we can prevent a problem that could have as much impact as the S&L crisis.” 
Swecker called another news conference in December  to say the same thing,
this time adding that mortgage fraud was a “pervasive problem” that was “on the
rise.” He was joined by officials from HUD, the U.S. Postal Service, and the Internal
Revenue Service. The officials told reporters that real estate and banking executives
were not doing enough to root out mortgage fraud and that lenders needed to do
more to “police their own organizations.” 
Meanwhile, the number of cases of reported mortgage fraud continued to swell.
Suspicious activity reports, also known as SARs, are reports filed by banks to the Fi-
nancial Crimes Enforcement Network (FinCEN), a bureau within the Treasury De-
partment. In November , the network published an analysis that found a -fold
increase in mortgage fraud reports between  and . According to FinCEN,
the figures likely represented a substantial underreporting, because two-thirds of all
the loans being created were originated by mortgage brokers who were not subject to
any federal standard or oversight. In addition, many lenders who were required to

submit reports did not in fact do so. 
“The claim that no one could have foreseen the crisis is false,” said William K.
Black, an expert on white-collar crime and a former staff director of the National
Commission on Financial Institution Reform, Recovery and Enforcement, created by
Congress in  as the savings and loan crisis was unfolding. 
Former attorney general Alberto Gonzales, who served from February  to
, told the FCIC he could not remember the press conferences or news reports
about mortgage fraud. Both Gonzales and his successor Michael Mukasey, who
served as attorney general in  and , told the FCIC that mortgage fraud had
never been communicated to them as a top priority. “National security . . . was an
overriding” concern, Mukasey said. 
To community activists and local officials, however, the lending practices were a
matter of national economic concern. Ruhi Maker, a lawyer who worked on foreclo-
sure cases at the Empire Justice Center in Rochester, New York, told Fed Governors
Bernanke, Susan Bies, and Roger Ferguson in October  that she suspected that
some investment banks—she specified Bear Stearns and Lehman Brothers—were
producing such bad loans that the very survival of the firms was put in question. “We
repeatedly see false appraisals and false income,” she told the Fed officials, who were
gathered at the public hearing period of a Consumer Advisory Council meeting. She
urged the Fed to prod the Securities and Exchange Commission to examine the