Four years after President Obama promised to crack down on mortgage fraud, his administration has quietly made the crime its lowest priority and has closed hundreds of cases after little or no investigation, the Justice Department’s internal watchdog said Thursday.
The report by the department’s inspector general undercuts the president’s contentions that the government is holding people responsible for the collapse of the financial and housing markets. The administration has been criticized, in particular, for not pursuing large banks and their executives.
“In cities across the country, mortgage-fraud crimes have reached crisis proportions,” Attorney General Eric Holder said at a mortgage-fraud summit in Phoenix in 2010. “But we are fighting back.”
The inspector general’s report, however, shows that the FBI considered mortgage fraud to be its lowest-ranked national criminal priority. In several large cities, including New York and Los Angeles, FBI agents either ranked mortgage fraud as a low priority or did not rank it at all.
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The FBI received $196 million from the 2009 to 2011 fiscal years to investigate mortgage fraud, the report said, but the number of pending cases and agents investigating them dropped in 2011.
“Despite receiving significant additional funding from Congress to pursue mortgage fraud cases, the FBI in adding new staff did not always use these new positions to exclusively investigate mortgage fraud,” the report says.
Mortgage fraud was one of the causes of the 2008 financial collapse. Mortgage brokers and lenders falsified documents, sometimes to make mortgages look safer, other times to make the property look more valuable.
The inspector general focused much of its report and most of its recommendations on fixing internal systems that produced inaccurate data that wildly overstated the government’s results.
Holder, for example, announced in 2012 that prosecutors had charged 530 people over the previous year in cases related to mortgage fraud that had cost homeowners more than $1 billion.
Almost immediately, the Justice Department realized it could not back up those statistics, the inspector general said. After months of review, it became clear that only 107 people were charged.
The $1 billion figure, it turned out, had been drastically inflated. It was actually $95 million, the inspector general said.
Yet Justice Department officials repeated those claims for months, even after it was obvious the figures were wrong, the inspector general said.
The Justice Department contested the inspector general’s findings, noting that the number of mortgage-fraud indictments and convictions roughly doubled from 2009 to 2011. In 2012, the government reached a $25 billion civil settlement with the nation’s five largest mortgage servicers.
“The facts regarding the department’s work on mortgage fraud tell a much different story than this report,” a department spokeswoman, Ellen Canale, said. “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.”
Last year, the Justice Department announced a $13 billion settlement with JPMorgan Chase over the bank’s questionable mortgage practices.
The Justice Department agreed with the recommendations to improve the record keeping that produce such figures.