Mortgage fraud is responsible for untold trillions of dollars in bad loans currently defaulting across the country, and Florida has played a starring role in the tragedy, a federal commission said during a hearing in Miami on Tuesday.

A panel of national and local experts sat before the federal Financial Crisis Inquiry Commission during a hearing focused on liar's loans, predatory mortgage practices and shady home appraisals. They concluded that the financial impact of the fraud was more severe than most have estimated, and prosecuting those responsible will be nearly impossible. It was the third of four hearings being carried out nationwide by the commission, which Congress assembled last year to investigate the causes of the global financial meltdown.

`A CENTRAL ISSUE'

``Mortgage fraud is not just a side issue -- in many ways it's a central issue of this financial collapse,'' former Florida Sen. Bob Graham, a commission member, said after the hearing. ``I was stunned at the extent and the dollar impact of mortgage fraud and its contribution to the worst financial meltdown in half a century.''

Five hours of expert testimony painted a picture of a system wrought with regulatory inadequacies and financial incentives for unscrupulous behavior at nearly every level. The result, panelists said, was more than $1 trillion lost by banks, homeowners and, ultimately, the U.S. taxpayer between 2005 and 2007 alone. As many as 70 percent of mortgages now in foreclosure were the result of at least one element of fraud, said Ann Fulmer, vice president at Interthinx, a risk-mitigation firm that does extensive mortgage fraud research.

The hearing also laid out the laundry list of challenges local law enforcement officials face as they try to track down and prosecute the predatory lenders and mortgage fraudsters active in Florida during the housing boom.

Compared to the savings and loan crisis of the 1980s and 1990s, which saw more than 1,000 mid- and high-level executives jailed for white-collar crime, mortgage fraud convictions have been paltry, panelists said. Solving mortgage fraud cases is difficult because the process is time-intensive and proving ``intent'' can be nearly impossible, said Ellen Wilcox, a special agent with the Florida Department of Law Enforcement.

Another challenge: Florida's statute of limitations means fraudulent loans issued more than three years ago are no longer subject to prosecution.

``Most mortgage fraud will not be reported until the mortgage goes bad, but the `crime' occurred when the money was lent,'' Wilcox said. ``If there was mortgage fraud in the granting of a mortgage loan in 2004, it can not longer be criminally charged.''

The average mortgage fraud case takes one to two years to investigate, she added.

Law-enforcement officials are also generally under-equipped to face down Florida's nation-leading fraud problem -- the Mortgage Asset Research Institute has ranked the state No. 1 in the country for mortgage fraud since 2006, with nearly three times the normal amount of reported cases.

Still, some progress has been made, and the general consensus is that many of the individual bad apples involved in mid-decade mortgage fraud have been pushed out by market forces, tougher regulation and law enforcement.

TASK FORCE LAUNCHED

In 2007, Miami-Dade police and Mayor Carlos Alvarez launched the Mortgage Fraud Task Force and lobbied for tougher regulatory laws, said Miami-Dade police Capt. Ed Gallagher . Since then, Miami-Dade police have made 239 arrests for mortgage fraud. The U.S. attorney's office Mortgage Fraud Strike Force has gotten 401 convictions since 2007, said Wilfredo Ferrer, U.S. attorney for the Southern District of Florida.

The Florida Office of Financial Regulation has put together a task force to curb the latest wave of real estate fraud -- mortgage modification schemes, said commissioner J. Thomas Cardwell.

Graham and other FCIC commissioners plan to use Tuesday's findings as part of a comprehensive financial crisis report, due to the president by Dec. 15. Graham said he hoped that report would help policymakers better understand the regulatory and market forces that led to the costly mortgage fraud crisis.

``The role of government as a regulator had gotten -- as it did in so many other areas of finance -- fairly soft and flabby during the early part of this century,'' he said. ``Hopefully, one of the positive outcomes of this terrible experience is that the agencies will be better supported, staffed and given the capability to be a lion and not a toothless tiger.''