In October 2012, in the run-up to the presidential election, U.S. Attorney General Eric Holder announced that through the Department of Justice’s Distressed Homeowner Initiative, it brought charges against 530 mortgage fraud defendants for fraud resulting in losses of more than $1 billion.
“The success of the Distressed Homeowner Initiative, and the developments we announce today, underscore our determination to pursue these and other financial fraud criminals around the country,” Holder said in a statement.
After a year of media questions about the claims, the Justice Department — claiming it used a total that included cases not involving distressed homeowners or punitive actions other than imprisonment — revised the numbers. The total number of defendants dwindled to 107 and the total criminal losses fell to $95 million.
In a report released this month by the DOJ’s Office of the Inspector General, it was revealed that the priority the department gave mortgage fraud publicly was not equal to the attention it gave the crime in practice. The OIG found that mortgage fraud was a low priority or not a priority at all in the field offices the OIG visited, including those in Baltimore, Los Angeles, Miami and New York. Specifically, the FBI ranked mortgage fraud the lowest criminal threat in the lowest crime category, according to the OIG.
Moreover, the Justice Department failed to keep adequate data for the mortgage fraud prosecutions it did attempt.
“[We] found that the Executive Office for United States Attorneys’ (EOUSA) case management system did not allow for a complete or reliable assessment of DOJ’s mortgage fraud efforts because many Assistant United States Attorneys (AUSA) informed us about underreporting and misclassification of mortgage fraud cases,” read the report. “They further explained that mortgage fraud cases are often coupled with other criminal activities and that, when initiating a case file, an AUSA may fail to include the mortgage fraud code if it is not the leading charge in a case.”
Three Democratic legislators — Sen. Elizabeth Warren (Mass.) and Reps. Elijah Cummings (Md.) and Maxine Waters (Calif.) — drafted a letter to Holder indicating their “deep concern” over the lack of priority the FBI is showing to mortgage fraud and requesting a meeting. Of concern, according to the letter dated for Monday, is the disclosure that data collected by the Justice Department related to mortgage fraud prosecutions were not reliable, according to DOJ officials’ own testimony.
“Despite the fact that all Assistant U.S. Attorneys ‘are required to certify the accuracy of their LIONS [Legal Information Office Network System] case information biannually,’ every Assistant U.S. Attorney contacted by the Inspector General ‘informed us that the information provided in LIONS should not be considered a complete or reliable indicator of the work their offices had done to address mortgage fraud,’” the letter reads.
Between 2009 and 2011, the FBI received $196 million to investigate mortgage fraud activities, including “robo-signing,” or the signing of thousands of mortgage documents by mortgage-servicing employees without the documents being read. This practice was called into question during the banking collapse that led to the Great Recession. According to analytics firm CoreLogic, 4.9 million Americans lost their homes to foreclosure since the beginning of the banking crisis.
The Justice Department has defended its policies. “The facts regarding the department’s work on mortgage fraud tell a much different story than this report,” Justice Department spokesperson Ellen Canale told CNBC. “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 combating mortgage fraud.”