Foreclosures Opening a Can Of Worms

September 29th, 2008

The foreclosure crisis is leading to the opening of a can of worms. Mortgage probes are underway focusing on valuation of property. The question is whether the lending firms noted the correct value of the mortgaged houses on their balance sheets and also if the securities that were linked with these mortgages were properly marked for the investors.

Although the field is fertile fore investigation, proving irregularities is going to be tough. The markets itself right now is fumbling over the valuation of property. Under the circumstances the task is not going to be easy to prove that the firms intentionally juggled and overvalued assets. At the moment the investigation is at the stage of fact finding. With the FBI and SEC joining hands with Congressional committee it seems that the investigations will take up a lot of time.

The foreclosure crisis in which many banks and mortgage firms were involved has led to the FBI investigating 26 companies. Previously the number was 24. There are 1,400 foreclosure related mortgage fraud cases that involved brokers, appraisers as well as purchasers and lenders.

Four of the top jumbo institutions under the scanner for foreclosure related misdemeanors are Fannie Mae, Freddie Mac, American International Group (AIG) and Lehman Brothers. Their capers have led to the bail out plan involving the whopping amount of $700 billion.

The FBI is also investigating IndyMac Bancorp for fraud. Countrywide Financial that is now under Bank of America is also suspect.

The focus will be on the financial houses and the individuals at the helm. The law enforcing body chose to remain anonymous because of the ongoing preliminary stage of the investigations. The spokespersons of Fannie Mae, Freddie Mac and Lehman did not make any remarks or comments.

The bailout plan is expected to release credit and thus bring back stability to the badly battered markets of USA as well as the world. For saving Fannie and Freddie the government had to bring out $100 billion for each of them. Another $85 billion loan has been given to AIG to save it from bankruptcy. Lehman Brothers has filed bankruptcy after a private rescue effort failed. All the giant financial bodies were laid low by foreclosure related bad mortgages and securities. It remains a big question how and why the sub-prime mortgages were allowed to operate freely without regulations with its teaser rates luring in gullible voters. It is this has led to the foreclosure crisis of tsunami proportions.