updated 1/14/2010 2:29:47 PM ET 2010-01-14T19:29:47

U.S. Attorney General Eric Holder told a commission investigating the financial crisis on Thursday that he would find out whether anything was done in response to an FBI warning in 2004 of an "epidemic of mortgage fraud" that could plunge the country into financial collapse.

Holder also said the diversion of hundreds of Justice Department and FBI officers to the effort against international terrorists after the Sept. 11, 2001, terror attacks may have made it harder for the FBI to pursue the kind of risky banking practices that led to the worst financial crisis since the Great Depression. He said, however, that fighting white-collar crime has become a top priority for him, and more resources are being devoted to such cases.

Holder testified at the second day of hearings by the Financial Crisis Inquiry Commission, a 10-member panel created by Congress to explore the causes of the 2008 financial meltdown.

Commission Chairman Phil Angelides grilled Holder on a Sept. 4, 2004, warning from a top FBI official about "an epidemic of mortgage fraud coursing across this country" and the dire crisis that could occur should it be left unchecked. That was four years before the financial meltdown on Wall Street that led to unprecedented government bailouts of some of the nation's largest banks and financial institutions.

Angelides asked Holder to evaluate what was done after the 2004 FBI warning. "What warnings were sent up the line?" Angelides asked.

Holder said he was not familiar with the 2004 warning but would look at it.

"We are constantly in the process of reviewing that which we can do better," Holder said.

At issue are findings by the FBI in 2004 that mortgage fraud was on the rise and posed a threat to financial markets that could equal the savings and loan crisis of the late 1980s. Angelides, a Democrat and former treasurer of California, cited an undercover FBI investigation that discovered more than 380 fraudulent loans worth more than $70 million.

Chris Swecker, an assistant director at the FBI, described the fraud at the time as a "potential epidemic." A month later, Swecker testified before a House Banking subcommittee and told lawmakers the problem was "pervasive and growing."

Angelides asked Holder about the reported "diversion of 5,000 white-crime investigators at the FBI" and whether that had made it more difficult for the Justice Department to pursue financial fraud cases.

Holder said the Sept. 11 attacks did divert many of the FBI's investigators into terror-related activities, but he said his department has "made combating white-collar crime a priority" and is increasing the number of investigators and prosecutors handling such investigations.

Angelides said just as the panel had grilled top banking executives the day before, it was important to determine "what happened on the public side." The study comes amid rising public anger with bailouts and banker's bonuses.

Separately, President Barack Obama proposed Thursday a new 10-year tax on the country's largest banks to cover a projected $117 billion shortfall in the government's bailout fund.

The financial crisis panel also heard from Federal Deposit Insurance Corp. Chairman Sheila Bair, Security and Exchange Commission Chairman Mary Shapiro and others.

Shapiro told the panel that one of the problems contributing to the financial crisis was lax oversight of rating agencies. Agencies such as Moody's and Standard and Poor's rate the creditworthiness of companies and securities. Many of the mortgage-related bonds that became toxic and clogged the nation's financial system had been awarded top ratings.

Rating agencies "bear a lot of responsibility for products that got into investors' hands," Shapiro said. She said the SEC was tightening its oversight, but "the fundamental problem is the business model," presenting a built-in conflict of interest for the rating agencies.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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