Senate votes to hire officials targeting mortgage fraud

WASHINGTON -- The Senate voted Tuesday to hire hundreds more FBI agents and prosecutors to investigate the estimated 5,000 allegations of mortgage fraud reported each month.

The 92-4 bipartisan vote came as a House panel considered an anti-predatory lending bill that attempts to ban the type of subprime mortgage loans that contributed to the nation's economic slide. It also came as the former head of a one-time leading mortgage lender, American Home Mortgage Investment, agreed to pay nearly $2.5 million to settle allegations of accounting fraud.

"As foreclosures menace more and more hardworking homeowners, they become more desperate for help," said Senate Majority Leader Harry Reid, D-Nev. "Unfortunately, schemers, swindlers and scam artists are all too happy to pounce."

The Senate bill, sponsored by Sens. Patrick Leahy, D-Vt., and Chuck Grassley, R-Iowa, is estimated to cost more than $265 million a year for the next two years. Supporters, including President Obama, say the legislation would more than pay for itself because of the fines and penalties that would result from more aggressive government investigations.

Bill supporters anticipate that the money would hire another 160 special FBI agents and more than 200 support staff, including forensic analysts. Currently, the FBI has fewer than 250 special agents assigned to financial fraud cases, despite caseloads that have more than doubled in the past three years.

Under the bill, the Justice Department would hire 200 more prosecutors and civil enforcement attorneys, along with 100 support staff.

Other government entities in line to receive money include the Secret Service, Postal Inspection Service and the inspector general for the Housing and Urban Development Department.

An amendment by Sens. Chuck Schumer, D-N.Y., and Richard Shelby, R-Ala., added $21 million to the bill's original $245 million-a-year total for the Securities and Exchange Commission to boost its enforcement capabilities.

The measure covers the 2010 and 2011 budget years, which begin Oct. 1.

Another amendment added $5 million to create a congressionally appointed, independent commission to investigate the cause of the economic crisis. The bill also calls for a new Senate committee focused on improving regulations.

In the House, North Carolina Democratic Reps. Melvin Watt and Brad Miller on Tuesday pushed their proposal to try to prohibit banks from lending to consumers considered at risk for default. Lenders would have to make a "reasonable and good faith determination" effort to ascertain whether the customer can pay back the money.

The bill, which the full House could vote on as early as next week, encourages lenders to refocus their business on the kind of traditional 30-year, fixed-rate loans that require consumers to pay 20% of their house upfront. Other mortgages would be restricted in how they are sold.

Proponents of the bill say that if banks are required to retain some of the risk of the mortgages they sell, they would be less likely to lend to consumers with bad credit histories.

The bill also tries to protect consumers from exorbitant interest rates by limiting the amount of money a mortgage broker can earn from selling high-rate loans.

The House Financial Services Committee was on track to approve the measure on Tuesday, despite industry concerns that the new regulations would restrict the flow of available credit.

Also on Tuesday, the Securities and Exchange Commission announced that former American Home Chairman and Chief Executive Michael Strauss had agreed to the $2.5 million settlement. Strauss had been accused of concealing the company's deteriorating finances as the subprime mortgage crisis hit and before the company filed for bankruptcy in August 2007.

Charges against the company's former chief financial officer, Stephen Hozie, also accused of accounting fraud and misleading investors, are pending.

Associated Press Writer Marcy Gordon contributed to this story.