Financial-focused exchange traded funds (ETFs) may be experiencing some of the fallout related to potential mortgage fraud.

For years, the F.B.I. has been warning that mortgage fraud is a huge problem, many of the recent cases dealing with local or regional mortgage fraud rings that involve speculators, loan officers, brokers, and other housing professionals, reports Vikas Bajaj for The New York Times.

So far, the F.B.I. has opened investigations into 14 unnamed companies as part of an ongoing investigation of the troubled mortgage industry. Accounting fraud, insider trading or other violations in connection to loans made to borrowers with weak or subprime credit are targeted. During 2006, 35,600 suspicious activity reports were related to mortgage fraud, up 22,000 from the previous year.

Mortgage companies and Wall Street banks are cooperating with numerous federal and state investigations. Financial related investments that have suffered may not regain returns, but could be on their way to a quicker recovery.

Some related funds that could have taken the hit are:

  • Financial Select Sector SPDR (XLF)
  • KBW Regional Banking (KRE)
  • iShares Dow Jones US Financial Sector (IYF)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.