Los Angeles Times (03/17/08); Reckard, E. Scott
Problems in the subprime mortgage market are in large part the result of a lack of diligence by investment banks, rating firms and mortgage-bond buyers, according to a presidential working group. Due diligence is the function of loan reviewers, and they maintain that they noticed plenty of red flags in the paperwork of subprime home loans that were serious enough to warrant turning down a loan; yet the problems were ignored or removed from reports. The loan checkers cite inflated incomes, documents that looked fake, inflated appraisals and "liar's loans" as big problems. The FBI has opened more than a dozen investigations into companies with hopes of determining whether they tried to conceal problems with their subprime mortgages.
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