Watchdog Calls Out DOJ For Mortgage Fraud Response

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In a damning review of the Obama administration’s efforts to crack down on mortgage fraud, a new report has found that the Justice Department made the crime one of its lowest priorities while overstating its success in prosecuting such cases.

The report, which was released Thursday by an internal watchdog at the Department of Justice (DOJ), called into question the agency’s stated commitment to holding people accountable for misconduct that precipitated the financial crisis.

The FBI considered mortgage fraud “as the lowest ranked criminal threat in its lowest crime category,” between 2009 and 2011, the report concluded. Although the bureau received $196 million over that span to investigate mortgage fraud, the inspector general determined that by 2011, the number of agents investigating cases had fallen, as did the number of pending cases.

“DOJ and its components have repeatedly stated publicly that mortgage fraud is a high priority and during this audit we found some examples of DOJ-led efforts that supported those claims,” the inspector general wrote. “However, we also determined during this audit that DOJ did not uniformly ensure that mortgage fraud was prioritized at a level commensurate with its public statements.”

The report further criticized the Justice Department for inflating results from the Distressed Homeowners Initiative, a multi-agency effort led by the DOJ to target perpetrators of mortgage fraud. In 2012, Attorney General Eric Holder announced that the initiative had resulted in charges against 530 criminal defendants for schemes that cost homeowners more than $1 billion in estimated losses.  It turns out, according to the report, that only 107 defendants were charged. Estimated losses, meanwhile, were revised to $95 million — 91 percent less than the department’s original tally.

Other initiatives have brought greater success. In 2012, the nation’s five largest mortgage lenders agreed to pay $25 billion in penalties and borrower relief for thousands of homeowners who were illegally foreclosed upon. In November, JPMorgan Chase agreed to a landmark $13 billion civil penalty to resolve an array of state and federal investigations into the sale of risky mortgage products.

But the Justice Department has come under repeated fire for what critics have called a lackluster response to the crisis. To date, no single Wall Street executive has faced criminal prosecution for fraud related to the sale of bad mortgages.

During the two years covered by the inspector general report, the government’s response was largely spearheaded by Lanny Breuer, the former assistant attorney general for the department’s criminal division. In the 2013 FRONTLINE investigation The Untouchables, Breuer defended his record, saying financial fraud had not gone unpunished on his watch.

“When a case could be brought, we did. But when we cannot prove beyond a reasonable doubt that there was criminal intent, then we have a constitutional duty not to bring those cases,” Breuer said. He added that when considering whether to bring a case, the department took into consideration the effect that such action may have on the broader economy. The statement drew a sharp rebuke from lawmakers, who said the interview raised “important questions about the Justice Department’s prosecutorial philosophy.”

In a statement to FRONTLINE, department spokeswoman Ellen Canale defended the government’s record, noting that in the years covered by the investigation, the number of mortgage fraud indictments nearly doubled, and the number of convictions rose “by more than 100 percent.”

“The facts regarding the department’s work on mortgage fraud tell a much different story than this report,” said Canale. “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.”

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