Foreclosure probes growing

In the latest efforts to control the real estate mess, federal authorities have launched a criminal investigation into mishandled property seizures.

The FBI is trying to determine whether the financial industry broke criminal laws in the mortgage foreclosure crisis, a federal law enforcement official told The Associated Press.

In a related inquiry, Housing and Urban Development Secretary Shaun Donovan said the Federal Housing Administration has found disparities in how five major lenders have responded to distressed homeowners.

He said the FHA reached that conclusion after a four-month review. He declined to name the lenders.

The government has authority to fine lenders that fail to comply with guidelines of the FHA, which guarantees some home loans.

The moves come amid an uproar over accusations that mortgage lenders nationwide cut corners on paperwork and legal procedure as they moved to seize millions of homes.

It follows a slew of other state efforts to respond to the foreclosure-paperwork debacle.

Attorneys general in all 50 states and the District of Columbia are jointly investigating whether mortgage companies have violated state laws.

The Obama administration's top housing official said Wednesday that lenders are within their rights to resume foreclosures.

But he cautioned that they could face federal fines if they are found to have broken the law.

The warning was largely directed at Bank of America and Ally Financial's GMAC Mortgage unit, two big lenders that are resuming foreclosures after halting them temporarily to review documents.

Both lenders faced allegations that employees signed but didn't read foreclosure documents that may have contained errors. The companies say they're fixing the problems.

NEW RULE

Meanwhile, the chief judge of New York's courts Wednesday began enforcing a new rule requiring lawyers handling foreclosures there to verify that all paperwork is accurate. Attorneys already have an obligation to ensure that the documents they present to the court are valid.

But New York Chief Judge Jonathan Lippman said having them sign something affirming that all papers got a proper review will hold them accountable like never before.

Lippman said he was convinced the courts were seeing "systemic structural failings'' in the foreclosure process, and he said judges and lawyers have a responsibility not to close their eyes to paperwork errors -- even if they seem minor.

"You are talking about tremendous consequences. You are talking about taking people's homes,'' he said. "Those papers have to be accurate. They have to be credible.''

In Washington, HUD Secretary Donovan said Bank of America and GMAC made ``a business decision'' to resume foreclosures.

Donovan said the government has found no evidence that the entire system used to handle foreclosures is flawed. Several federal agencies, including his department, bank regulators and the Federal Trade Commission, have authority to penalize mortgage companies if they're found to have violated the law.

The housing secretary discussed the foreclosure document mess earlier in the day with officials from 11 federal agencies that are reviewing the issue.

He said the government is also in contact with the state attorneys general.

MISLEADING?

The criminal investigation, still in its early days, is focused on whether companies misled federal housing agencies that now insure a large share of U.S. home loans, and whether the firms committed wire or mail fraud in filing false paperwork.

This comes at the same time that investors have begun to hold firms accountable for selling securities composed of mortgages that were improperly serviced.

Federal law enforcement officials usually have little authority to prosecute cases involving foreclosure law because they are largely in the states' domain.

But according to Washington Post sources familiar with the investigation, the federal government has both an interest and the grounds to prosecute the abuses because housing agencies under HUD, particularly the Federal Housing Administration and Ginnie Mae, play a major role in insuring U.S. home loans.

After reports surfaced in recent weeks that large banks filed court documents across the country that had not been properly prepared or reviewed, federal investigators want to determine whether similar paperwork was submitted to housing agencies to get insurance payouts, the source told The Washington Post.

LACK OF REVIEW

In some cases, bank employees have acknowledged signing documents without reviewing them.

If similar filings were made to housing agencies, this could violate federal law, which makes it a crime to lie about substantive matters to the federal government.

Investigators are also looking at whether the transfer of mortgage and foreclosure documents through the mail and computer networks would allow the federal government to make a legal case on charges of mail and wire fraud.

CHARGES POSSIBLE

After what will probably be a lengthy investigation, the Justice Department could file a criminal or civil case if wrongdoing is ultimately found.

This could be done in coordination with HUD's inspector general.

The investigation has yet to target a firm or person, sources said, but it could focus on banks, independent mortgage servicers, law firms and other companies involved in the foreclosure process.