Justice Dept. unit to probe mortgage-backed securities

— -- WASHINGTON - The U.S. government dispatched 55 prosecutors, FBI agents and analysts Friday to a new financial crimes enforcement unit focusing on home mortgage abuses that fueled the 2008 economic collapse.

For the first time since the crisis, federal investigators will be joined by state law enforcement officials as part of a working group that, New York Attorney General Eric Schneiderman said, would launch the "broadest, deepest investigation into what blew up the economy.''

The unit, first referenced earlier this week by President Obama in the State of the Union, is expected to plunge deeper into the causes of "massive market failures" that continue to harm homeowners, U.S. Attorney General Eric Holder said.

"I have no doubt that we will improve our ability to recover losses, to prevent fraud, to bring abuses to light and to hold those who violate the law accountable," Holder said.

The attorney general disputed suggestions that enforcement efforts so far have been inadequate, requiring the new initiative.

"The notion that there has been inactivity is belied by a troubling thing called fact," Holder said, referring to a recent string of successful prosecutions and civil lawsuits targeting various figures in the financial services industry.

In the past six months, Holder said federal prosecutors have won prison sentences in four cases involving securities fraud, bank fraud and investment fraud, totaling 155 years.

"It is not as if we haven't been doing anything,'' Holder said. "We have been doing a great deal. … We are bound and determined to hold people accountable."

Holder said the new effort will involve a new collaboration of federal and state officials with collective authority to investigate abuses in all aspects of the financial services industry, including the packaging, selling and valuing of residential mortgage-backed securities.

Residential mortgage-backed securities are the huge investment packages of what turned out to be near-worthless mortgages that bankrupted many investors and contributed to the nation's 2008 financial crisis.

"I am confident that this new effort will improve our ability to ensure justice for victims," Holder said.

He disclosed that investigators have issued civil subpoenas to 11 financial institutions in recent days, with the prospect that "more will follow." He said bringing full enforcement resources to bear will help expose abuses and hold violators accountable.

In addition, information sharing between federal and state investigators will produce more far-reaching results. Schneiderman pointed out that New York state securities law is more flexible than federal securities law, which can make it easier to assemble cases.

As for those who engaged in misconduct in the financial industry, "we know what they did, they know what they did and, we know they know we know what they did," said Schneiderman.

"Mortgage products were in many ways ground zero for the financial crisis," said Robert Khuzami, director of the enforcement division at the U.S. Securities and Exchange Commission.

The collapse in value of mortgage-backed securities resulted in unprecedented losses, and "all of us" in law enforcement are dedicated to holding accountable financial institutions that lied and cheated and misled investors, said Khuzami.

Contributing: Associated Press