'Rogues gallery' of mortgage scandals

As Congress works on a $700 billion bailout plan for the U.S. financial system, the FBI has extended fraud investigations to 26 companies involved in mortgage lending. Authorities are attempting to determine whether any of the firms have participated in accounting fraud, insider trading or inflating values of mortgage-related assets. The FBI has not disclosed a list of companies under investigation, but the following are just a few firms in distress and executives under scrutiny.

Freddie Mac

Mortgage-related losses forced the U.S. Treasury to take over the quasi-governmental mortgage giants Freddie Mac and Fannie Mae, the nation's largest financers of home mortgages.

Last year, federal regulators charged Freddie Mac with negligent conduct for its role in a four-year securities fraud accounting scandal, MSNBC reported. Former president and chief operating officer David Glenn, former chief financial officer Vaughn Clarke and former senior vice presidents Robert Dean and Nazir Dossani agreed to pay civil fines totaling $515,000 and restitution payments amounting to $275,548.

Former Freddie Mac Chairman and Chief Executive Officer Richard Syron told MSNBC last year, "We take these charges seriously, and that's why the Freddie Mac of today is a very different company than the Freddie Mac of the past."

Richard Syron

The company promised to no longer violate securities laws, according to the Associated Press. News of a 2003 scandal revealed Freddie Mac had misreported earnings by $5 billion since 2000.

Freddie Mac's high-level executives were removed from their positions, and the company was forced to pay a $125 million civil fine in a settlement with the Office of Federal Housing Enterprise Oversight.

In a federal lawsuit, the U.S. Securities and Exchange Commission said Freddie Mac "engaged in a fraudulent scheme that deceived investors about its true performance, profitability and growth trends."

However, the scandals were far from over. In July, the New York Times reported Freddie Mac's chief risk officer gave Syron a memo in 2004, warning him that the company was granting problematic loans that could endanger the firm. Two dozen high-level executives confirmed that Syron had ignored the advice.

Freddie Mac former chief risk officer, David A. Andrukonis, told the Times Syron would not listen when told the company would become exposed to losses.

"He said we couldn't afford to say no to anyone," Andrukonis said.

Freddie Mac would continue to buy riskier loans for the next three years.

Syron has received compensation of more than $38 million since 2003. Meanwhile, stock prices plummeted, and more than $80 billion of shareholder value vanished.

Now, the FBI is investigating both Freddie Mac and Fannie Mae for coprorate fraud. It will determine whether the companies intentionally misled the stock market by claiming the businesses were faring better than they actually were.

Fannie Mae

In 2006, the Office of Federal Housing Enterprise Oversight accused former Fannie Mae Chief Executive Franklin D. Raines and two other executives of manipulating earnings from 1998 to 2004 so they would receive bonuses totaling $115 million.

Civil charges were filed against Raines, who is also a former budget director for President Bill Clinton; J. Timothy Howard, former chief financial officer; and Leanne G. Spencer, former Fannie Mae controller. Raines is paying a $24.7 million settlement, an additional $2 million fine and he was forced to forfeit $15.6 million in stock options. Howard agreed to pay $6.4 million, and Spencer agreed to pay $275,000. Fannie Mae has agreed to pay a $400 million civil settlement to the OFHEO and the Securities and Exchange Commission.

Franklin D. Raines

According to the Wall Street Journal, Freddie and Fannie own or guarantee about $5.2 trillion worth of mortgages. The riskiest loans held by Freddie and Fannie are known as "Alt-A" and subprime mortgages, worth about $780 billion, or about 15 percent of the total portfolio. The recent federal government takeover of Freddie and Fannie passes to U.S. taxpayers the contingent liability for failures in the entire $5.2 trillion loan portfolio held by the two mortgage giants.

Both Sens. John McCain and Barack Obama have come under fire for allegedly having donors and campaign advisers tied to Fannie Mae and Freddie Mac, the New York Times reported. The companies are said to have contributed money to protect them from stricter regulations while purchasing risky mortgages.

Sen. Christopher Dodd, D-Conn.

McCain's campaign manager, Rick Davis, was reportedly paid a total of $35,000 a month from 2000 to 2002 by Freddie Mac and Fannie Mae. McCain told the Times Davis no longer works for the mortgage giants and has had "nothing to do with it" since he left the payrolls. However, another New York Times report alleges Freddie Mac paid Davis $15,000 each month from 2005 through August 2008. The McCain campaign responded to the Times article, saying Davis separated from his consulting firm in 2006 and has never been a paid lobbyist for Fannie Mae or Freddie Mac.

Democrats received the largest political contributions from the companies. As WND reported, Obama in his three complete years in the Senate is the second largest recipient of Freddie Mac and Fannie Mae campaign contributions, behind only Sen. Christopher Dodd, D-Conn., the powerful chairman of the Senate banking committee.

According to OpenSecrets.com, from 1989 to 2008, Dodd received $165,400 in Fannie Mae and Freddie Mac campaign contributions, including gifts from PACs and individuals. He is followed by Obama, who received $126,349 in such contributions since being elected to the Senate in 2004.

In 2005, McCain warned of the coming mortgage crisis and pressed for regulatory reform of Fannie Mae and Freddie Mac.

Countrywide Financial

Angelo Mozilo

In addition to being the former Fannie Mae chief executive, Franklin Raines is also one of several "friends of Angelo," or FOAs. These VIPs accepted loans at below-market rates with preferential terms from Countrywide Financial, a now bankrupt loan originator in the subprime mortgage debacle. Only prominent people were allowed to participate in the low-key program, named for former Countrywide Chief Executive Angelo Mozilo, that did away with points, fees and borrowing rules.

A Washington Post profile published July 17 said Raines was then playing a role advising the Obama presidential campaign on mortgage and housing policy. As WND reported, he also received $90 million in his five years as Fannie Mae CEO, from 1999 to 2004. He was forced to retire when reports surfaced that the company had hidden profit fluctuations. Fannie Mae was the biggest buyer of Countrywide mortgages.

James Johnson

Another former CEO of Fannie Mae and former adviser to Sen. Barack Obama's presidential campaign, James Johnson, is reported to have accepted more than $7 million in FOAs from Countrywide. Johnson was appointed to head Obama's vice-presidential selection committee, but he was forced to step down when the Countrywide controversy surfaced in June. As WND reported, Johnson earned $21 million in just his last year at Fannie Mae.

Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, also received an FOA from Countrywide Financial. At the same time, he recently proposed the federal government bail out failing mortgage lenders, including Countrywide. According to Condé Nast Portfolio, Dodd also received $21,000 in campaign donations from the company since 1997. From 1989 to 2008, Dodd also received $165,400 in Fannie Mae and Freddie Mac campaign contributions, including contributions from PACs and individuals, followed by Obama, who received $126,349 in such contributions since being elected to the Senate in 2004.

Sen. Kent Conrad, D-N.D.

Sen. Kent Conrad, D-N.D., also accepted a $1.07 million FOA from Countrywide, as did former Secretary of Housing and Urban Development Alphonso Jackson, former Secretary of Health and Human Services Donna Shalala and former U.N. ambassador and assistant Secretary of State Richard Holbrooke, according to a report by Condé Nast Portfolio.

Jackson received his loans in 2003 when he was deputy H.U.D. secretary under President Bush. Sahalala served under the Clinton administration and became president of the University of Miami before receiving two Countrywide FOA loans in 2002. Holbrooke, former adviser to the Hillary Clinton presidential campaign, received one of the VIP loans in 2001.

Condé Nast Portfolio reveals the Countrywide code of ethics bans executives and employees from "improperly influencing the decisions of government employees or contractors by offering or promising to give money, gifts, loans, rewards, favors, or anything else of value." Likewise, federal officials are not allowed to accept gifts, such as loans not available to the general public.

Countrywide also has a registered lobbyist, and strict rules ban senators from accepting gifts worth more than $100 in a single year. According to reports, it has granted hundreds of millions of dollars in special FOA loans every year to politicians, officials, executives, celebrities and other VIP borrowers.

Bank of America penned a deal to aquire the company in early 2008 after its shares plummeted from $45 to less than $5 in one year. Countrywide is now said to be under FBI investigation for securities fraud.

Indymac Bank

IndyMac Bancorp Inc. was sent into freefall after Sen. Chuck Schumer, D-N.Y, escalated the crisis by publicly leaking his June 26 letter to the Office of Thrift Supervision and the Federal Deposit Insurance Corp. He warned that the bank was on the brink of collapse.

Schumer said he was "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers and that the regulatory community may not be prepared to take measures that would help prevent the collapse of IndyMac," according to the Wall Street Journal.

Sen. Chuck Schumer, D-N.Y.

Schumer's letter sent IndyMac customers into widespread panic, and they quickly withdrew their money from the bank – to the tune of $1.3 billion.

OTS Director John Reich told the Journal Schumer's letter gave the bank "a heart attack." However, Schumer has not expressed remorse for the letter. He says he was simply doing his job when he cautioned regulators about an impending collapse.

"It's what legislators are supposed to do," Schumer told the Journal. He said faulting him is like blaming "the fire on the guy who called 9-1-1."

While the bank had experienced some mortgage portfolio losses prior to the incident, OTS has directly attributed IndyMac's closing to Schumer's letter.

A government takeover of IndyMac Bank is estimated to have cost the FDIC between $4 billion and $8 billion. According to the Associated Press, the FBI is currently investigating IndyMac for fraud and providing home loans to risky borrowers.

Lehman Brothers

Richard Fuld (ThisisMoney.co.uk)

Lehman Brothers CEO Richard Fuld was awarded a $22 million bonus in 2007 after the bank's net profit was reported to have risen by 5 percent to a record $4.2 billion, according to Reuters. Now the company, formerly known as Wall Street's fourth largest investment bank, has filed one of the largest bankruptcies in U.S. history.

According to Reuters, Fuld "played a game of brinksmanship, refusing to accept offers that could have rescued the firm because they didn't reflect the value he saw in the bank."

Fuld could have sold a 25 percent stake in the company to Korea Development Bank for $4 billion to $6 billion before the collapse. But according to Wall Street Journal reports, Fuld claimed the offer was too low.

Lehman Brothers filed for Chapter 11 bankruptcy protection on Sept. 11. Now, the company is under investigation by the FBI to determine whether the company misled investors about its assets and pushed agencies to inflate its ratings.

Washington Mutual

Kerry Killinger

After Washington Mutual lost more than 70 percent of its market value this year following mortgage-related losses, the Seattle-based bank has been seized by the Federal Deposit Insurance Corporation. The FDIC sold its banking assets to JPMorgan Chase for $1.9 billion.

Washington Mutual is expected to have between $19 billion and $28 billion in total losses following risky lending practices under its former chief executive, Kerry Killinger.

The bank financed at least 43 mortgages worth $24.5 million for one family of home flippers who had a history of fraud, the Orange County Register reported. Washington Mutual, like many banks, did not conduct criminal background checks on its borrowers and liberally granted loans. Vijay and Supriti Soni of Corona del Mar had numerous felony convictions for real estate fraud schemes. They received the Washington Mutual loans last year and are now foreclosing on six properties.

Some say Washington Mutual provided adjustable-rate and subprime mortgages without cautious discrimination. The bank began to suffer when borrowers could not repay the loans.

In 2007, Killinger claimed the company changed its policy to tighten lending standards to protect it from the worsening market. Killinger was stripped of his chairman title, and the board of directors removed him from his CEO position in September. The bank reported $10.9 billion in losses over the last three quarters. It is the largest bank to fail in U.S. history.

American International Group, Inc (AIG)

Former American International Group CEO Maurice Greenberg stepped down from the company in 2005 amid allegations of an accounting scandal. Martin Sullivan succeeded him as AIG CEO and was ousted in June. He was given $19 million in termination pay, including a $15 million severance package and a bonus of $4 million, according to a July AIG 8-K form report.

Meanwhile, the federal government bailed out American International Group Inc. by granting it an $85 billion Federal Reserve loan in exchange for 80 percent of its equity. AIG CEO Edward Liddy said it made an "exhaustive effort" to borrow money in the private market, but it failed, the Associated Press reported.

The company insured risky debt and bonds against default, and some investors claim it overvalued its Alt-A and subprime mortgage-backed securities. Now the FBI is investigating the nation's largest insurer and its executives for fraud.

Bear Stearns

Matthew Tannin and Ralph Cioffi

The New York City-based Bear Stearns Companies, Inc., a large global investment bank, collapsed after it was dicovered the bank had illiquid and nearly worthless subprime hedge funds. Investors filed claims against Bear Stearns in 2007, stating they were misled about the value of the hedge funds.

Bear Stearns Chief Executive James E. Cayne reportedly spent 10 of 21 work days playing golf and competing in a bridge tournament while executives frantically worked to prevent collapse of the funds.

Two fund managers, Ralph Cioffi and Matthew Tannin, surrendered to federal authorities in June. They were charged with nine counts of securities, mail and wire fraud to hide mounting losses from investors. Cioffi was also charged with insider trading

In the days before the firm was sold to JPMorgan Chase & Co. for only $2 a share in March 2008, Bear Stearns' new chief executive, Alan Schwartz, assured investors the company had sufficient liquidity.

The investment bank, having survived the Great Depression and several recessions, was purchased for less than one-tenth its market price.

Fed Reserve Chairman Ben Bernanke, President Bush, Treasury Secretary Hank Paulson and SEC Chairman Chris Cox

Following an onslaught of rumors about losses and liquidity issues, investors began withdrawing their money. Bear Stearns was forced to sell to its rival, JPMorgan Chase. In what was considered an unprecedented move at the time, the Fed extended a $30 billion credit line to finance the transaction.

Now, while the FBI investigates 26 firms for fraud, Congress works to approve a $700 billion bail out plan to buy troubled investments and save financial institutions from their mounting debts. The president is also asking Congress to increase the limit on the nation's debt from $10.6 trillion to $11.3 trillion – a move that could raise interest rates and weaken the dollar. Many say the bailout will reward irresponsible financial institutions and greedy executives, burdening taxpayers with the consequences in the midst of an already troubled economy.