As we’ve mentioned, we’re not big fans of Federal Bureau of Investigation probes. Too often, they involve criminal inquiries into companies that we like (in this case, we can’t even say if we like them, however, as the FBI won’t tell us who it’s targeting). But we do know the investigation concerns allegations of mortgage fraud, which could very well spill over into banks. More on how this action will jibe with the other probes into the mortgage business by the SEC, Justice Department and the New York Attorney General.

The Federal Bureau of Investigation has opened criminal inquiries into 14 companies as part of an investigation of the subprime-mortgage crisis, FBI officials said. The probe is focusing on accounting fraud, securitization of loans and insider trading, among other areas.

The FBI wouldn't identify the companies under investigation but said it is looking into allegations of fraud in various stages of the mortgage process, from companies that bundled the loans into securities to the banks that ended up holding them.

As previously reported, federal prosecutors in Brooklyn, N.Y., as well as the Securities and Exchange Commission are looking into the collapse of two Bear Stearns & Co. hedge funds. The SEC and Justice Department also are investigating insider stock sales and accounting at New Century Financial Corp., a mortgage lender in bankruptcy proceedings.

Yesterday, Morgan Stanley and Goldman Sachs Group Inc. disclosed in regulatory filings that they had received requests for information from government and regulatory agencies related to subprime loans, but the companies didn't identify the agencies. The companies declined to comment further.

FBI officials say their investigations are in the early stages. They note that the probes are complicated because of the sophisticated financial vehicles used to propel the mortgage-business boom in recent years.

Sharon Ormsby, financial-crimes section chief in the FBI's criminal-investigative division, said in an interview that the bundling of both good and bad loans into single securities makes any possible fraud hard to untangle. "The bundling of these loans is so huge, it's difficult for us to tear apart each of those bundles and say, 'OK, this bad loan is causing this securitization to fail."

The bureau's probes are the latest in a long list of investigations into the collapse of the subprime-mortgage market. In addition to the Justice Department and the SEC, various state attorneys general have begun their own investigations, including New York Attorney General Andrew Cuomo, who is looking into possible wrongdoing connected to mortgage-backed securities bought and sold by Wall Street firms.

The FBI's investigations represent an added dimension to the bureau's decade-long focus on mortgage fraud, which spiked during the housing boom. For years, the FBI has targeted fraud cases involving real-estate agents, appraisers and fake buyers. More recently, FBI officials and local prosecutors have set up teams to investigate mortgage fraud in several states where they have noted high fraud activity, including California, Texas, Florida and Arizona, all of which saw fast-growing rates of home-value appreciation.

The FBI and the Department of Housing and Urban Development opened an investigation into the mortgage practices of Atlanta home builder Beazer Homes USA nearly a year ago. In October, Beazer said it expected to pay regulators $8 million to $15 million to settle losses or fines related to violations of certain lending laws.

Now, the FBI is taking a closer look at possible fraud in the secondary market for mortgages, which could implicate well-known financial firms…

(Continue reading on The Wall Street Journal)

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