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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
(FinCEN), a bureau within the Treasury Department that administers money-laun-
dering laws and works closely with law enforcement to combat financial crimes.
SARs are filed by financial institutions when they suspect criminal activity in a finan-
cial transaction. But many mortgage originators, such as Ameriquest, New Century,
and Option One, were outside FinCEN’s jurisdiction—and thus the loans they gener-
ated, which were then placed into securitized pools by larger lenders or investment
banks, were not subject to FinCEN review. William Black testified to the Commis-
sion that an estimated of nonprime mortgage loans were made by noninsured
lenders not required to file SARs. And as for those institutions required to do so, he
believed he saw evidence of underreporting in that, he said, only about of feder-
ally insured mortgage lenders filed even a single criminal referral for alleged mort-
gage fraud in the first half of .
Countrywide, the nation’s largest mortgage lender at the time, had about , in-
ternal referrals of potentially fraudulent activity in its mortgage business in ,
, in , and , in , according to Francisco San Pedro, the former
senior vice president of special investigations at the company. But it filed only
SARs in , , in , and , in .
Similarly, in examining Bank of America in , its lead bank regulator, the Of-
fice of the Comptroller of the Currency (OCC), sampled mortgages and found
with “quality assurance referrals” for suspicious activity for which no report had been
filed with FinCEN. All met the legal requirement for a filing. The OCC conse-
quently required management to refine its processes to ensure that SARs were consis-
tently filed.
Darcy Parmer, a former quality assurance and fraud analyst at Wells Fargo, the
second largest mortgage lender from through and the largest in , told
the Commission that “hundreds and hundreds and hundreds of fraud cases” that she
knew were identified within Wells Fargo’s home equity loan division were not re-
ported to FinCEN. And, she added, at least half the loans she flagged for fraud were
nevertheless funded, over her objections.
Despite the underreporting, the jump in mortgage fraud drew attention. FinCEN
in November reported a -fold increase in SARs related to mortgage fraud be-
tween and . It noted that two-thirds of the loans being created were origi-
nated by mortgage brokers who were not subject to any federal standard or
oversight. Swecker unsuccessfully asked legislators to compel all lenders to forward
information about criminal fraud to regulators and law enforcement agencies.
Swecker attempted to gain more funding to combat mortgage fraud but was resis-
ted. Swecker told the FCIC his funding requests were cut at either the director level at
the FBI, at the Justice Department, or at the Office of Management and Budget. He
called his struggle for more resources an “uphill slog.”
In , , SARs related to mortgage fraud were filed; in there were
,. The number kept climbing, to , in , , in , and , in
. At the same time, top FBI officials, focusing on terrorist threats, reduced the
agents assigned to white-collar crime from , in the fiscal year to fewer than
, by . That year, its mortgage fraud program had only agents at any one
