Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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The Subprime Cleanup Intensifies
Did UBS Improperly Book Mortgage Prices? Several Probes Expand
February 2, 2008

Federal criminal prosecutors in New York are investigating whether UBS AG misled investors by booking inflated prices of mortgage bonds it held despite knowledge that the valuations had dropped, according to people familiar with the matter.

The investigation, by the U.S. attorney in New York's Eastern District in Brooklyn, is preliminary. The U.S. attorney's office frequently works closely with the Securities and Exchange Commission to coordinate efforts to gather information. The New York prosecutors haven't issued subpoenas, according to people familiar with the matter.

The SEC, deepening its own set of investigations into whether Wall Street firms improperly mispriced mortgage securities, recently upgraded probes of UBS and Merrill Lynch & Co. into formal investigations, people familiar with the matter say. This step, which requires approval of the full commission, gives the SEC broad subpoena power, or the authority to require firms and individuals to produce information.

Spokesmen for both UBS and Merrill declined to comment.

The investigations could raise the stakes for Wall Street in the multiple probes examining whether financial firms deliberately misvalued, or "mismarked," massive holdings of mortgage securities. Most of the current investigations into mortgage matters involve civil authorities; the U.S. attorney launches criminal investigations and has a history of prosecuting Wall Street-related matters. Last summer, federal criminal prosecutors began investigating the collapse of two internal hedge funds at Wall Street firm Bear Stearns Cos.

There is also a broader effort by the Justice Department to look into whether there was fraud in originating, packaging and selling mortgage-related products. The Federal Bureau of Investigation has said it has opened criminal inquires into 14 companies as part of an investigation of the subprime-mortgage crisis. The FBI wouldn't identify the companies under investigation.

Although prosecutors have expressed an interest in subprime matters, the criminal investigations might not result in the filing of any charges. Securities-valuation cases involve a fair amount of judgment based on an opaque market. To bring fraud charges, "prosecutors need proof to convince a jury beyond a reasonable doubt that the banks made materially misleading statements about securities, and proof that they did it with the intent to deceive," says Christopher J. Clark, a New York white-collar lawyer and former assistant U.S. attorney in Manhattan in the securities and commodities fraud unit. To obtain an indictment, prosecutors would need probable cause, he adds.

Other regulators led by the SEC are examining whether financial firms should have told investors earlier about the declining value of such securities and how they priced them on their books, people close to the matter say.

In its investigations, the SEC also is delving into whether Wall Street firms placed higher values on securities they own than those they placed in customer holdings, the people say. The SEC previously has said it has opened roughly three dozen investigations tied to the downturn of the subprime market, which primarily is tied to borrowers with poor credit histories.

In the SEC's UBS investigation, the agency is examining, among other things, a situation last year in which a trader at a now-defunct hedge fund of UBS's Dillon Read unit was confronted and then ousted after he valued mortgage securities at prices below the value assigned to the same securities elsewhere at UBS. In late October, the SEC interviewed the Dillon Read trader following a front-page article in The Wall Street Journal detailing the incident, according to a person close to the situation. The SEC has issued subpoenas in the UBS probe since, according to a person familiar with the matter.

During the past several months, financial firms have announced more than $100 billion in write-downs on mortgage-related assets. Just this week, UBS took its third write-down in four months, bringing its total to an estimated $18.4 billion for 2007.

The disclosures of fresh write-downs could hurt UBS Chairman Marcel Ospel just as the bank is preparing for a crucial shareholders meeting on Feb. 27 to approve an $11.5 billion capital infusion from Asian and Middle Eastern investors. Since July, a parade of UBS executives have departed amid the subprime turmoil, including the former chief executive, the chief financial officer, the head of investment banking and the bank's fixed-income chief. In recent months, meantime, Merrill has announced write-downs of mortgage-securities assets totaling $22.4 billion.

--Kate Kelly, Susan Pulliam and Carrick Mollenkamp contributed to this article

"the criminal investigations might not result in the filing of any charges."

Sometimes I have to wonder if prosecutorial gyrations aren't a well choreographed sideshow aimed at placating and keeping oppressed homeowners from revolting, more than anything else. 

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Knowledge of debt risk key to loan probe

Feb. 1, 2008 (Thomson Financial delivered by Newstex) -- WASHINGTON (AP) - A federal investigation of potential mortgage-market fraud is likely to examine whether banks duped investors into buying securities marketed as stable that were really backed by risky home loans.

Officials did not give many details at a Tuesday briefing on the criminal probe of 14 companies being conducted by the FBI and Securities and Exchange Commission. But accounting experts and lawyers who have studied the mortgage crisis say investigators are probably sifting through reams of records to figure out how much investment banks knew -- and disclosed -- about the risks of mortgage securities backed by subprime loans.

The key issue for investigators is whether they can prove banks knowingly deceived investors.

'The question is: Did they have enough knowledge to cause the marketing of the bonds themselves to be a fraudulent act?' said Ohio Attorney General Marc Dann, who has been investigating the industry. 'What we're finding ...the deeper we dig into this, is that they knew a lot.'
Before last year's collapse of lending to borrowers with weak credit, the field boomed from $160 billion in new mortgages in 2001 to a peak of $625 billion in 2005, according to trade publication Inside Mortgage Finance. Money flowed from around the world, as bonds backed by high-priced U.S. mortgages paid healthy yields. The makers and packagers of those loans reaped hefty fees.

Kathleen Engel, a professor at Cleveland-Marshall College of Law who has written about predatory practices, said investigators probably will examine financial firms that profited by betting against the subprime mortgage market. That would suggest they 'knew something that other people didn't know and they weren't sharing it,' she said.

Morgan Stanley (NYSE:MS) , Goldman Sachs Group Inc. (NYSE:GS) and Bear Stearns Cos. (NYSE:BSC) all disclosed in regulatory filings Tuesday that they are cooperating with requests for information from unspecified regulatory and government agencies. Representatives of Deutsche Bank (NYSEB) , Bear Stearns, Citigroup Inc. (NYSE:C) and Morgan Stanley declined to comment. Representatives of Lehman Brothers Holdings Inc. (NYSE:LEH) and Goldman Sachs did not immediately respond to requests for comment.

It's going to be difficult to prove that Wall Street firms or subprime lenders intended to commit fraud, Guy Cecala, publisher of Inside Mortgage Finance, said in an e-mail message. But, he said, 'it shouldn't be too difficult to get these companies to pay some hefty amounts to settle the charges in order to avoid the stigma associated with a federal prosecution.'
Some say the subprime mortgage industry long showed signs of questionable accounting practices, both in how loans were made to borrowers, and in how the value of mortgage investments were calculated. While lenders typically sold mortgage-backed securities to investors, they often retained an interest in those investments.

'In many cases there was a very very high risk that (home loans) wouldn't pay off, but yet it wasn't reflected in their accounting,' said Donn Vickrey, co-founder of Scottsdale, Ariz., research firm Gradient Analytics.

Several state officials including those in New York, Connecticut and Illinois are pursuing their own investigations. Massachusetts Secretary of State William Galvin on Friday filed civil charges against Merrill Lynch (OOTC:MERIZ) & Co., alleging that the investment bank sold shaky mortgage securities to the city of Springfield, Mass. even though it knew the investments were risky.

'We are puzzled by this suit,' Merrill Lynch spokesman Mark Herr said in an e-mail. 'We have been cooperating with (Galvin's office) in its inquiry.'
Florida Attorney General Bill McCollum said Thursday that he is investigating the nation's No. 1 mortgage lender, Countrywide Financial Corp. (NYSE:CFC) , for possible unfair and deceptive business practices. Countrywide said it will cooperate with the Florida investigation.

Sorting through the mess is bound to be an extraordinary task for investigators. 'It certainly has the potential to become a massive investigation that could involve many high-profile institutions,' said Robert Mintz, a former federal prosecutor in New Jersey and head of law firm McCarter & English LLP's white collar defense practice.

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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