The FBI and Mortgages

The LAT's Richard Schmitt knows how to write a startling lede:

WASHINGTON -- Long before the mortgage crisis began rocking Main Street and Wall Street, a top FBI official made a chilling, if little-noticed, prediction: The booming mortgage business, fueled by low interest rates and soaring home values, was starting to attract shady operators and billions in losses were possible.

"It has the potential to be an epidemic," Chris Swecker, the FBI official in charge of criminal investigations, told reporters in September 2004. But, he added reassuringly, the FBI was on the case. "We think we can prevent a problem that could have as much impact as the S&L crisis," he said.

Wait, we didn't need mortgage regulation to prevent the current mess, the FBI alone could have prevented it, if only it had been a bit more on the ball and hadn't moved thousands of agents off the crime beat and onto the terrorism beat?

Actually, not really. Schmitt's article presents no evidence that Swecker's optimism as to the FBI's abilities was remotely justified. And in fact while there was undoubtedly criminal behavior going on during the mortgage boom, both the boom and the bust would have been pretty much the same size in its absence. There's more than enough blame to be spread around for the mess we're currently in; you can't place it all on criminals.

I have a feeling that the "epidemic" that Swecker was worried about was decidedly smaller than what eventually ensued, and that his billions in losses were very much in the single-digit range, caused by overinflated valuations rather than falling national house prices.

But still, at least the FBI diagnosed that there was something rotten in the mortgage market, as early as 2004. Which is more than you can say for any other arm of the US government.

(HT: Campbell)

Comments

[Persevere:]

Why the housing crisis?

My opinion - Cheap labor of Illegal criminal aliens, coupled with criminal employers and mortgage brokers, and very little law enforcement and prosecution of said criminals.

2008 Aug 27 11:30 AM

[OligarchyNot:]

The deregulation of the banking industry, coupled with unnaturally low interest rates and irresponsible public officials are the cause of the housing crisis. The value of real estate had historically increased in tandem with inflation until this housing crisis. When the value of real estate started outpacing inflation by many percentage points, those in charge of monitoring the banking/lending industry knew this was a big red flag, yet they did nothing about trying to reign it in (indeed, I would imagine most of them based their personal investments on what was happening and made a ton of money). Of course, it didn't help that the Republicans, who think privatization and deregulation are the answer to everything, had deregulated the banking industry back in the mid-1990s.

Inasmuch as many Americans want to have some individual(s) to blame for this mess, and illegal immigrants are the easiest choice, the illegal immigrants had nothing to do with the housing crisis. Instead of blaming illegal immigrants for any and everything when they are simply trying to survive from day to day, we should be blaming our lack of -- once again -- regulations and the enforcement and funding of same.

2008 Aug 27 02:10 PM

[debtacid:]

Yeh, I can imagine how long an FBI investigation of say Countrywide in 2004 would have lasted. The fix was in, SIVs were pumping, property taxes were rolling in, and Wall Street's politicians would have shut down the FBI quicker than you can say Jack Frost.

2008 Aug 27 02:33 PM

[rm:]

we should be blaming our lack of -- once again -- regulations and the [enforcement and funding of same. ]

Leave your ax at the door, please.

There's not one player in the mortgage mess that has clean hands: the de-regulators, Wall St., Congress, the President, DPA "charities," hedge fund operators, mortgage originators, lax underwriters, scofflaw real estate investors, and foereign investors with too much capital on their hands, and borrowers who didn't do their homework, and took out loans that would only work under the bluest of blue skies.

There is no ONE to blame... we're all to blame.

2008 Aug 28 08:55 AM

[jackooo:]

I notified the F>B>I> months ago regarding a mortgage broker scam. No response from them. I told them I had all the paperwork regarding the loan. All they had to do was look at it. Zero, zilch, nada.

2008 Aug 28 04:53 PM