updated 4/16/2008 8:15:21 PM ET 2008-04-17T00:15:21

FBI Director Robert Mueller on Wednesday described a "tremendous surge" in mortgage fraud investigations that he said has diverted agents from other cases and is expected to keep growing.

At a Senate hearing, Mueller said the FBI is investigating an estimated 1,300 mortgage fraud cases — including 19 into sub-prime lending practices by U.S. financial institutions.

That's up from three months ago, when FBI officials said they were investigating 14 companies for possible fraud or insider trading violations in connection with loans made to risky borrowers, and investments spun off of those loans.

"We've had a tremendous surge in cases related to the sub-prime mortgage debacle," Mueller told a Senate Appropriations panel during a hearing on the FBI's $7.1 billion budget request for the 2009 fiscal year that begins Oct. 1. "We expect them to grow even further."

"I'm not sure at this point we can see the extent of the surge," he added.

Mueller did not identify any of the companies under scrutiny. The Justice Department reportedly is looking into whether the nation's largest mortgage lender, Countrywide Financial Corp., misrepresented its financial position and the quality of its mortgage loans.

Congress is considering legislation to help half a million or more struggling homeowners get into lower-cost mortgages amid a darkening economic outlook that seems to be sinking into a recession.

At Wednesday's hearing, Sen. Barbara Mikulski, D-Md., warned that the economy could take another hit if there is a "collapse of confidence" in lenders.

"We need to not only help the American people with their foreclosures, but we have to make sure that we maintain confidence in the financial institutions," Mikulski said. "If we have a collapse of confidence, this could have even far more draconian effects on the economy."

As part of the fraud inquiries, the FBI has seen an uptick in reverse mortgages cases, Mueller said. "That is something that we are seeing and may well need additional resources to address," he said.

Reverse mortgages are typically used to finance retirement or pay unexpected medical bills. They are becoming the escape route of choice for seniors caught in the tight straits of high-risk mortgages.

Some lawmakers fear the reverse mortgage industry is not immune from abusive sales practices preying on seniors, such as aggressive marketing and excessive fees.

Mueller said the growing number of cases has forced the FBI to shift agents from other areas, such as health care fraud and other financial crimes, to focus on mortgage lending practices.

Currently, 204 agents are investigating mortgage fraud cases out of an estimated 12,500 in the FBI.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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