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Miami official: 70% of defaulted mortgages are fraudulent

UPDATED at 12:34 p.m.:

Day Two of the Financial Crisis Inquiry Commission has been underway for a while now, as Chairman Phil Angelides and his commissioners try to "figure out what the heck happened," as he has said, in the 2007-08 financial crisis.

The second panel, consisting of state attorneys general and other local officials, is underway.

Glenn Theobald, chief counsel of the Miami-Dade police department, which has been hunting down mortgage fraud, said that some 70 percent of all defaulted mortgages in his region have some form of fraud within them. Miami has been called "ground zero" for mortgage fraud.

The fraud either comes from the homeowner -- who lied about their income or assets to qualify for a mortgage they shouldn't have received -- or from the mortgage lender, who misstates the terms of the mortgage to the borrower or engages in other illegal activity to sell the mortgage.

Though this number is shocking, I suppose it probably shouldn't be. It makes sense when you think about it.

Texas official: Financial system too complex for federal regulators alone

12:34 p.m.: Denise Voigt Crawford, Texas Securities Board president, said state officials are and should be the first to identify problems in the financial system.

"As a general proposition, state regulators are usually the first to identify risks and related trends that are substantial contributing factors to systemic risk," she said. "The complexity of financial markets has exceeded the competency capacity of federal regulators alone."

Bair: Financial crisis originated outside the view of regulators

11:10 a.m.: The first panel, consisting of FDIC Chairman Sheila Bair, SEC Chairman Mary Schapiro and assistant attorney general Lanny Bruer just wrapped up.

"Eventually, the largest bank and thrift holding companies expanded into the shadow banking system by incorporating products and services into their own more lightly regulated affiliates and subsidiaries," Bair said. "The migration of essential banking activities outside of regulated financial institutions to the shadow banking system ultimately lessened the effectiveness of regulation and made the financial markets more vulnerable to a breakdown.

"Thus, it is not surprising that this crisis affected the largest non-bank financial institutions first," such as AIG, Bair said.

Like Fed Chairman Ben Bernanke, Bair called for resolution authority to wind down failing non-bank financial institutions, as it has with banks.

"This crisis represents the culmination of a decades-long process by which our national policies have distorted economic activity away from savings and toward consumption, away from investment in our industrial base and public infrastructure and toward housing, away from the real sectors of our economy and toward the financial sector," Bair concluded.

To read the testimony of FDIC chairman Sheila Bair, click here.

To read the testimony of SEC chairman Mary Schapiro, click here.

To read the testimony of assistant attorney general Lanny Bruer, click here.

-- Frank Ahrens
Follow me on Twitter at @theticker

By Frank Ahrens  |  January 14, 2010; 12:34 PM ET
Categories:  Congress , Housing , Regulation , The Ticker  | Tags: Financial crisis inquiry commission, Phil Angelides, fcic  
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