Justice looks into risky mortgages

WASHINGTON — Turning its scrutiny to bigger fish in the subprime mortgage scandal, the Justice Department is investigating whether lenders or Wall Street firms defrauded investors in the sale of risky mortgage securities, its Criminal Division chief disclosed Thursday.

"We absolutely are looking at the conduct of the securitizers themselves, and what did they say to those who purchased the (securities)," Assistant Attorney General Lanny Breuer told a commission created by Congress to investigate causes of the nation's economic collapse.

"Candidly, (we) have been looking at that for a while and are looking at that right now in a very key matter."

Breuer didn't identify any company under scrutiny, but Wall Street's biggest investment banks bought many of the $2 trillion in home mortgages issued to shaky borrowers, converted them to high-yield bonds and sold the bonds to investors, including pension funds, insurers and foreign banks. Many of the securities have since defaulted, and investors have lost billions of dollars.

Attorney General Eric Holder, who also appeared before the commission, said the economic crisis has brought concern about financial fraud "to the forefront." Holder, who recently announced the creation of a financial fraud task force, said the Justice Department "is using every tool at our disposal, including new resources, advanced technologies and communications capabilities" to catch perpetrators.

According to Breuer, the FBI received upwards of 70,000 "suspicious activity reports" relating to possible mortgage fraud in 2009 and has 2,800 investigations under way nationwide.

The Justice Department disclosures came on the second day of Financial Crisis Inquiry Commission hearings, as federal and state enforcement officials laid bare the regulatory holes, blunders and lack of foresight that enabled the subprime mortgage industry to churn out millions of ill-fated loans that sank the economy.