Fed task force eyes lenders and Wall Street in subprime mess
NEW YORK—Federal authorities, responding to the subprime-mortgage crisis, have formed a task force to determine if lenders or Wall Street firms participated in fraud.
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.
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 if actions that led to the subprime crisis rise to the level of a crime.
"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 potentially illegal actions 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. The company filed for bankruptcy protection last summer, only about one week removed from being one of the 10 largest mortgage lenders in the country.
Unlike New Century and most other bankrupt lenders, American Home Mortgage was not a subprime lender. Subprime lenders cater to home buyers with spotty credit. Almost none of American Home Mortgage's $58.9 billion in home loans in 2006 year were to subprime borrowers.
Yet as credit markets tightened, lenders came calling and American Home was suddenly unable to deliver as much as $800 million in promised loans. It laid off almost 90 percent of its 7,000 employees.
There was no immediate response to a message left Monday with the company.
