The Blame Game

November 7, 2008

A guest post by Jay C. Hammond, freelance journalist and researcher.

There are plenty of candidates for blame in the current mortgage meltdown. Yet the ability of the Federal Bureau of Investigation (FBI) to investigate mortgage fraud and other financial crimes is increasingly being called into question. The FBI and the Department of Justice are the agencies primarily responsible for pursuing criminal charges against lenders and financial firms.

Mortgage fraud is blamed for annual losses of between $4 and $6 billion, according to statistics published on the FBI website at www.fbi.gov/hq/mortgage_fraud.htm, By September, the FBI had already received more than 62,000 reports of suspicious activity representing losses of $1.4 billion in 2008. There were 1,569 active investigations underway as of August 2008. Compare that to only 462 in 2007 and 295 in 2003.

Despite the sharp rise in complaints and criminal investigations, the FBI has experienced a decline in the number of staff investigating white collar and financial crime. Funding increased by less than 10 percent of what the agency requested between 2001 and 2007. The question now seems to be whether the FBI has the resources to investigate current and ongoing mortgage fraud, let alone those alleged crimes that contributed to the current situation.

Rep. John Conyers (D-MI), the chairman of the House Judiciary Committee, just a week before an American Election Day on which he was seeking re-election, became the latest official to raise that question in the media. He is not the only one. Rep. Zoe Lofgren (D-CA), Mark Kirk (R-IL) and Chris Carney (D-PA) called on their fellow members of Congress to address the FBI’s financing issues nearly two weeks ago in an article in the New York Times. Conyers, Lofgren, Kirk and Carney were all up for re-election and retained their seats in the U.S. Congress, according to results from MSNBC.com.

It is wrong to believe that the current mess might have been avoided if the FBI had done more investigation into potentially fraudulent lending practices. The low numbers of suspicious activity being reported in previous years, indicates very few people were looking for signs of potential fraud in the booming mortgage industry. The warning bells sounded in 2005 when the financial difficulties at Fannie Mae and Freddie Mac were widely viewed as isolated incidents. Whether this crisis could have been averted then, no one will know. What is known is that there is plenty of blame to go around today. The question is: will anyone be prosecuted and held accountable for their part in getting us here?

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