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The Honolulu Advertiser
Posted on: Friday, February 1, 2008

FBI targets mortgage fraud in Hawaii

By Peter Boylan
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

FBI chief Robert S. Mueller III, in Hawai'i after a trip to Asia, says there "is not a state in the country that is not dealing" with mortgage fraud.

JEFF WIDENER | The Honolulu Advertiser

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The FBI has opened multiple mortgage fraud investigations in Hawai'i as a result of the fallout from the nation's subprime mortgage crisis, the bureau's director said yesterday.

FBI Director Robert S. Mueller III, speaking to reporters on a stopover following a trip to Asia, confirmed the subprime mortgage mess has reached Hawai'i.

"It is a substantial problem. We have several investigations ongoing here in Hawai'i," said Mueller, speaking at the FBI's Honolulu office. "There is not a state in the country that is not dealing with this. We generally have investigated and successfully prosecuted these individuals."

Mueller declined to discuss details of the Hawai'i investigations.

A spokesman for the FBI's Honolulu division also declined comment, citing ongoing criminal investigations.

In Washington, D.C., on Tuesday, the FBI said it is investigating 14 companies for possible fraud or insider trading violations in connection with loans made to risky borrowers, and investments spun off those loans.

Mueller and agency officials did not identify the companies under investigation but said the wide-ranging probe, which began in spring 2007, involves companies across the industry, from mortgage lenders to financial firms that bundle home loans into securities sold to investors.

The FBI is working in conjunction with the Securities and Exchange Commission.

Federal authorities are looking into the practices of so-called subprime lenders, as well as potential accounting fraud committed by financial firms that hold these loans on their books or securitize them and sell them to other investors.

A popular scheme that the FBI has identified as the No. 1 form of mortgage fraud in states such as New York, Texas, California, Pennsylvania and Utah, involves straw buyers.

The fraud purveyors buy undervalued properties and then sell them to co-conspirators or unsuspecting customers at artificially inflated appraised prices, then disappear with a large profit.

The homeowner ends up with homes worth far less than the loan taken out to buy them, and foreclosures and ruined credit follow.

Carl Cunningham, who sits on the board of directors of the Mortgage Bankers Association of Hawai'i, said the association hopes that those who would manipulate best practices and regulations governing home sales in Hawai'i would be caught.

"It's unfortunate that people would take that kind of tack with people trying to buy homes for their families. I'm sure there are cases here they are going to find," said Cunningham. "I hope they prosecute them to the full extent of the law and prevent this (fraud) from happening."

According to the FBI, suspicious activities reviewed for investigation by all FBI field offices increased from roughly 3,000 in fiscal 2003 to 35,000 in 2006 and 48,000 in 2007.

During the first quarter of fiscal 2008, the FBI has received about 15,000 reports.

Last year, 56 percent of all cases had losses of more than $1 million, according to the FBI. The number of pending cases increased from 800 in fiscal 2006 to 1,200 in 2007.

Mueller also praised the local FBI office for its work with anti-terrorism investigations, public corruption, violent crime and drugs.

"Over the years we've had terrorism cases here. We have previously had individuals here who we have addressed," said Mueller. "There is no community in the U.S. free from having individuals recruiting or financing terrorist attacks."

Before arriving in Hawai'i yesterday, Mueller met with law enforcement officials in Cambodia, Vietnam and China.

In Beijing, Mueller met with FBI agents and Chinese officials from the Ministry of Public Security to discuss espionage, organized crime, anti-terrorism and security for the Olympic Games. Mueller said the FBI is assisting in security planning for the Olympics.

"They (the Chinese) have done a good job for ensuring a safe and secure games. I've been impressed," said Mueller.

The Associated Press contributed to this report.

Reach Peter Boylan at pboylan@honoluluadvertiser.com.