WASHINGTON — With Wall Street executives handcuffed and paraded in front of TV cameras and dozens of alleged mortgage scam artists arrested in cities nationwide, the penalty phase of the mortgage meltdown has begun in earnest.
The Justice Department said Thursday that more than 400 real estate industry players, including dozens in recent days, had been charged since March in a federal crackdown on incidents of mortgage fraud that have contributed to the housing crisis. Those arrested included brokers, appraisers, bankers and lenders.
The announcement came on the same day that two former hedge fund managers at Bear Stearns Cos. were arrested on suspicion of misleading investors about a fund that invested in sub-prime loans and collapsed at a cost to investors of $1.4 billion.
The executives became the first Wall Street figures to be charged criminally in the wake of the sub-prime debacle. The charges against them could be a road map for authorities to hold other Wall Street executives to account.
The FBI estimated the losses to homeowners and other borrowers who were victims of mortgage fraud at more than $1 billion. That is a small fraction of the near $1 trillion in losses worldwide that have been chalked up to the U.S. mortgage fiasco, and federal officials said the number of cases under investigation continues to grow rapidly.
California has been a center of mortgage fraud. On Thursday, Justice Department officials in Los Angeles announced the formation of a nine-agency task force to target those crimes.
"Whether committed by unscrupulous lenders, real estate professionals or desperate homeowners, mortgage fraud affects all of us," said Thomas P. O'Brien, the U.S. attorney in Los Angeles. "Defaults on inflated loans and resulting foreclosures impose huge monetary and social costs, as well as making it more expensive for everyone to obtain credit."
In Washington, FBI Director Robert S. Mueller III said the number of cases of possible mortgage fraud the bureau was investigating had doubled in the last three years to more than 1,400 as of May 31.
"To persons who . . . are involved in such schemes, we will find you. You will be investigated and you will be prosecuted," he said. "To those who would contemplate . . . engaging in such schemes, you will spend time in jail. That is the message we're sending out."
