More than 400 real estate industry players have been indicted, nationwide, since March - including dozens over the last two days - in a Justice Department crackdown on incidents of mortgage fraud nationwide that stem from the country's housing crisis.
The FBI put the losses to homeowners and other borrowers who were victims in the schemes at over $1 billion.
The FBI told the Star Tribune it has dozens of multi-million dollar criminal investigations underway in the Twin Cities as part of the national crackdown.
Minnesota Attorney General Lori Swanson said since December, her office has brought eight different lawsuits. She said the problem is widespread.
"This foreclosure crisis isn't even just a metro problem or a Twin Cities problem, it's really a statewide problem," said Swanson. "You go an hour and a half outside of the Twin Cities and you'll see record high levels of foreclosure in some of our exurban communities, and even rural communities now." "Mortgage fraud poses a significant threat to our economy, to the stability of our nation's housing markets and to the peace of mind of millions of American homeowners," Deputy Attorney General Mark Filip said at an afternoon news conference.
Since March 1, 406 people have been arrested in the sting dubbed "Operation Malicious Mortgage" resulting from 144 cases across the country. Sixty people were arrested on Wednesday alone, including in Chicago, Miami, Houston and a dozen other regions policed by the FBI.
Law enforcement officials said their stepped-up focus on mortgage cases aims to combat problems that have grown out of the risky lending practices prevalent until the mortgage market collapse started last year.
Officials have identified 10 "mortgage fraud hotspots" nationwide in California, Colorado, Texas, Minnesota, Michigan, Illinois, Ohio, New York, Georgia and Florida.
To people who have committed fraud or are contemplating doing so, FBI Director Robert Mueller said: "We will find you, you will be investigated and you will be prosecuted."
Swanson said she's not surprised federal officials are taking a close look at Minnesota.
"It's very serious here. I think since December alone, I've brought eight different lawsuits against companies that were preying upon people in foreclosure with various fraudulent schemes," said Swanson.
"We had a trial back in January in Hennepin County against one of these equity strippers, that came up with all kinds of devices to basically take the equity out of people's homes and leave them in a very distraught financial situation. It is pervasive," Swanson said.
Those named in the cases include housing developers, mortgage lenders and brokers, lawyers, real estate agents and appraisers, said Sharon Ormsby, section chief in charge of financial crimes for the FBI.
“This foreclosure crisis isn't even just a metro problem or a Twin Cities problem, it's really a statewide problem,”Minnesota Attorney General Lori Swanson
In some cases, gang, drug and organized crime investigations have resulted in mortgage fraud cases because such schemes enable criminals to launder money, Ormsby said.
Mortgage foreclosure rescue scams, which promise to help struggling homeowners stave off foreclosure and keep their homes, also have become a major problem, officials said. Typically, unsuspecting owners sign over their homes and then find they are victims of fraud.
In separate arrests, two former Bear Stearns managers in New York were indicted Thursday, becoming the first executives to face criminal charges related to the collapse of the subprime mortgage market.
Across the country, reports of mortgage fraud have soared over the past year as the subprime mortgage market collapsed, and defaults and foreclosures soared.
Banks reported nearly 53,000 cases of suspected mortgage fraud last year, up from more than 37,000 a year earlier and about 10 times the level of reports in 2001 and 2002, according to the Treasury Department's Financial Crimes Enforcement Network.
In recent months, the FBI has been investigating more than 1,400 mortgage fraud cases and 19 companies - including Bear Stearns - tied to the subprime mortgage crisis.
Officials declined to say who might be the next corporate target, but Mueller said the investigations focus on accounting fraud, insider trading, and failure to disclose the value of mortgage-related securities and other investments.
Under review for potential fraud are: investment banks, hedge funds, credit rating agencies, brokerage houses and due diligence firms - which evaluate loans packaged into investments.
Similar to the federal investigations of Enron Corp. and WorldCom Inc., the cases are complex and rely on intense scrutiny of documents, Mueller said.
(Copyright 2008 by The Associated Press. All Rights Reserved.)