Mortgage Fraud Efforts Fell Short, Justice Department Inspector General Concludes
By Jeffrey Benzing | March 13, 2014 5:07 pm

The Justice Department’s prosecution of mortgage fraud didn’t match its public bravura in the wake of the 2008 financial crisis, an Inspector General report released today said.

Law enforcement officials talked about a vigorous crackdown on the practices, including fraudulent mortgages, that led the country into a deep recession. But the report – which is disputed by the Justice Department — found that the FBI Criminal Investigative Division prioritized mortgage fraud cases as the lowest threat in the lowest-ranked category. e and making the cases a low priority.

Field offices in Baltimore, Los Angeles, Miami and New York ranked the cases as low priority or not a priority at all, the report by Justice Department Inspector General Michael Horowitz said. The report also criticized the FBI for deploying extra manpower elsewhere.

A Financial Fraud Enforcement Task Force was formed in 2009, headed by the Justice Department, to coordinate the law enforcement response. The Task Force was divided into working groups devoted to sub-areas of the crisis including residential mortgage-backed securities, securities and commodities fraud, and mortgage fraud. In addition. the Criminal Division at DOJ had its own mortgage fraud working group, under the Fraud Section.

From 2009 to 2011, Congress appropriated $196 million for the FBI specifically to target mortgage fraud. But new agents hired with that money were eventually assigned to high priority cases, the report found.

Meanwhile, the bureau’s Financial Institution Fraud Unit found that significant cases weren’t being investigated due to a lack of resources — not only that, but cases were being closed as resources were diverted to higher priority cases, the report said.

Michael Horowitz, Justice Department Inspector General (Credit: House Oversight and Government Reform Committee)

Supervisors interviewed said their offices “had a significant backlog of unaddressed and pending mortgage fraud investigations.”

The Inspector General’s report deals with fraud to win mortgage approval – which mostly victimizes banks – and fraud to squeeze money from hurting homeowners.

The report, however, does not deal with larger fraud tied to mortgage-backed securities, blamed as a major catalyst of the financial collapse. The FBI categorizes these cases as securities fraud, not mortgage fraud.

Mortgage prosecutions are down, the report said, though FBI officials said the caseload has dropped because mortgage fraud is waning as a threat.

Over time, investigators also said that mortgage schemes have shifted so that crimes targeting distressed homeowners are the top mortgage threat in many communities.

The Justice Department has pushed back on the report’s claims that mortgage fraud has not been a priority.

“It makes a completely inaccurate assessment of the department’s very aggressive effort to combat mortgage fraud,” spokeswoman Ellen Canale said in a statement.

“As the report itself notes, the department dedicated both manpower and funding to combating mortgage fraud,” she said, “and our efforts have resulted in significant criminal and civil enforcement actions in thousands of cases.”

The report also faults the Justice Department for using bad numbers – and continuing to use them once disputed – to tout its enforcement success.

In an October 2012 press conference, Attorney General Eric Holder erroneously said that the Distressed Homeowner Initiative of the Financial Fraud Enforcement Task Force had led to 530 individuals being charged for the past 12 months in cases with estimated losses of $1 billion.

After receiving inquiries about individual cases, the Justice Department lost confidence in its figures and found significant errors in the data, including the inclusion of cases that weren’t related to distressed homeowner fraud and cases that were more than a year old.

In reality, only 107 individuals had been charged, and the estimated losses in the cases totaled $95 million – about 91 percent less than Holder said at the press conference.

Even so, the Inspector General’s report said the erroneous figures were cited by the Justice Department for another 10 months. A press release on the DOJ website was eventually topped with a correction.

In a statement today, Sen. Charles Grassley (R-Iowa), ranking member on the Senate Judiciary Committee, chastised the Justice Department for wasting resources and not going after Wall Street, where bad mortgages were packaged into securities whose complex trading led to the financial industry collapse.

“The Inspector General’s report sheds light on what looks like an attempt by the Justice Department to pull the wool over the public’s eyes with respect to its efforts to go after the wrongdoers involved in mortgage fraud,” Grassley said. “According to the Inspector General, the department wasted time cooking the numbers about the cases it pursued, when it should have been prosecuting cases.”

Federal prosecutors, the report said, also failed to keep proper track of the number of mortgage fraud cases to judge their performance. Some attorneys, the report said, didn’t categorize cases as mortgage fraud, so a true tally of the prosecutions is impossible.

The report also notes a lack of communication between prosecutors and FBI agents, citing a situation where agents lost confidence in an unnamed U.S. Attorney.

“According to several FBI Special Agents we spoke with, they believed this particular USAO had not handled mortgage fraud cases in a timely manner and as a result, several of the field office white collar crime squads preferred not to refer cases to them,” the report said.

Claims that prosecutions don’t match public enthusiasm, Canale said, are not supported by the report’s actual findings.

“The Inspector General’s conclusion,” she said, “is not supported anywhere in his report.”

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One Comment

  1. Accetta says:

    In 2009 I wrote a book describing, in detail, the criminal fraud which was committed by Wall Street’s major financial institutions between 1999 and 2007. I predicted there would be no major criminal prosecutions of institutions or individuals. Publishers said I was being speculative, I replied I knew what I was talking about. See http://www.wallstreetmortgagefraud.com. In the years since I published in 2011 I have written that Obama/Holder have abrogated the rule of law, given Wall Street a complete pass, and have set the stage for still more mortgage fraud and economic turmoil in the future. The IG report not only confirms what anyone could see, but raises the incredible phenomenon that Justice functionaries are daring to refute his findings. The BIG LIE is being asserted before our very eyes! The IG should have the support of all of us. My efforts to inform Congress and the various “investigative” committees fell on entirely deaf ears. A Congressman told me he wanted my testimony before the House Banking Committee, them suddenly went radio silent, never to be heard from again. Mortgage fraud is the crime of this young millennium, and it is imperative this report get the full hearing and airing it deserves.