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Paul Kiesel
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FBI Investigating IndyMac for Fraud, TILA Violations

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CNN reports that the FBI is currently investigating IndyMac Bancorp for fraud. The federal government is likely looking into whether IndyMac committed fraud when it made home loans to subprime and/or Alt-A borrowers throughout the subprime boom.

Currently, the FBI is only focused on the company and not any individuals. The question becomes: Is the FBI looking into any potential TILA fraud by IndyMac? The reason this becomes a key question is because several banks not only allowed loans to go out to the market with TILA violations, but they also promoted the issuing of loans with vague and fraudulent terms within TILA disclosure pages by providing greater financial compensation to mortgage brokers who sold those types of loans.

TILA fraud was very prevalent during the subprime boom. Many banks failed to disclose details of teaser rate and option-ARM loans, therefore, banks were able to issue loans that should have never hit the market (they violated the Truth in Lending Act); IndyMac is one of several banks that committed these TILA violations.

According to CNN, “In a written statement, the FBI didn’t specifically comment on IndyMac but noted that it is investigating 21 corporations in the subprime lending market for possible mortgage fraud,” (CNN.com, 7/16/08).

This news comes just two days after the FDIC reopened the doors of California-based IndyMac. IndyMac was once one of the nation’s largest home lenders.