The Justice Department’s inspector general, in a report released Thursday, criticized agency efforts during and after the financial crisis to prosecute mortgage fraud, finding that such cases were a low priority despite public statements to the contrary.
DOJ’s mortgage fraud enforcement efforts were not “prioritized at a level commensurate with its public statements,” the 52-page audit report found. According to the report, the FBI “ranked mortgage fraud as the lowest ranked criminal threat in its lowest crime category.”
In a statement, Department of Justice spokeswoman Ellen Canale said, “The facts regarding the Department’s work on mortgage fraud tell a much different story than this report. In the time period in question, the number of mortgage fraud indictments nearly doubled, and the number of convictions rose by more than 100 percent. As the report itself notes, even at a time of constrained budget resources, the department has dedicated significant manpower and funding to combatting mortgage fraud.”
Investigators the office led by Inspector General Michael Horowitz found that DOJ has an “inability to accurately collect data about its mortgage fraud efforts.”
The faulty data was “starkly demonstrated” when Attorney General Eric Holder held a press conference on Oct. 9, 2012, touting DOJ mortgage fraud efforts. Holder claimed that 530 criminal defendants had been charged and that 110 civil cases were filed involving $1 billion in homeowner losses.
When the inspector general pressed for documentation the following month to support the statistics, the errors came to light. Rather than 530 criminal defendants, there were only 107. And the cases involved $95 million in losses, not $1 billion.
DOJ corrected the statistics in August 2013.
In a written response to a draft of the report, the Justice Department emphasized it has “focused successfully on mortgage fraud violations,” noting that from fiscal year 2009 to fiscal year 2011 convictions rose to 1,118 from 555. The Justice Department also noted obtaining 873 indictments in fiscal year 2009, 1,565 in fiscal year 2010 and 1,230 the year after that.
As the inspector general’s office prepared the report, it interviewed officials at the Executive Office for United States Attorneys, five unidentified U.S. Attorneys Offices and officials in the Federal Bureau of Investigation’s headquarters and four field offices. The office also interviewed agencies outside the Justice Department, including the Department of Housing and Urban Development Office of the Inspector General.
The report said all five U.S. Attorney’s offices had an assistant U.S. attorney assigned to the office’s mortgage fraud coordinator. But in four of the five offices, prosecutors were not tasked solely with pressing mortgage fraud cases and instead dealt with “dozens” of cases in “multiple program areas within their criminal section.”
“According to many of the AUSAs we interviewed, several of the program areas they handled were at one time considered a priority, a current DOJ effort or initiative, or individual U.S. Attorney preference. These AUSAs reported that the result has been a priority fatigue,” the report said. It added that prosecutors told the inspector general that over the past decade, the most common form of mortgage fraud shifted from criminality surrounding loan origination to foreclosure rescue; victims of loan origination schemes are “almost always” lenders whereas foreclosure rescue victims are “innocent homeowners.”
FBI officials also said mortgage fraud appeared to be changing into criminality during foreclosure rescue. Still, the report said “various FBI officials” saw mortgage fraud as a “waning” issue.
Much of the problem with case statistics is attributable to the Executive Office for United States Attorney’s case management system, which the report said does not accurately capture mortgage fraud cases. For example, some cases are not coded as mortgage fraud if it’s not the leading charge in a criminal case. Also, the system can’t specifically identify civil mortgage fraud cases.
The report offered seven recommendations, and the Justice Department, in a written response, concurred with each one.
The report proposed that DOJ improve its methods for collecting data about mortgage fraud cases and review it carefully before releasing it to the public.
It also recommended the Justice Department and Executive Office for United States Attorneys direct all U.S. Attorney’s Offices to “periodically assess any monetary thresholds applied to mortgage fraud cases to ensure they are reasonably based upon the threat within their respective jurisdictions and adequately allow for non-monetary harms that result from mortgage fraud schemes.”
The Justice Department responded to the recommendation by saying it already directs U.S. Attorney Offices to evaluate prosecution thresholds for violent and white-collar crimes and “will also assess any money thresholds applied to mortgage fraud cases.”
The report did identify a few bright spots, praising the Criminal Division’s leadership of a mortgage fraud working group and participation by the FBI and U.S. attorneys in more than 90 local task forces. From fiscal year 2009 to fiscal year 2011, the participating U.S. Attorney’s Offices said they had an approximately 93-percent guilty disposition rate but the report noted that disposition data did not specify defendants’ roles in the underlying mortgage fraud schemes.
@|Jenna Greene is a reporter for The National Law Journal, a New York Law Journal affiliate. She can be contacted at email@example.com. Andrew Keshner can be contacted at firstname.lastname@example.org. Twitter: @AndrewKeshner.