Justice Didn’t Ensure Mortgage Fraud Was Priority, IG Says

The U.S. Justice Department failed to pursue mortgage fraud in the years following the 2008 financial crisis with the same level of commitment that it publicly touted, an internal watchdog said.

While Attorney General Eric Holder said mortgage-fraud cases were among the department’s top priorities, the Federal Bureau of Investigation internally ranked them the lowest of six criminal threats, according to a report released today by Inspector General Michael Horowitz. The FBI devoted fewer resources to such cases even though Congress allocated $196 million for fiscal years 2009 to 2011 to pursue such conduct.

The Justice Department has been criticized by lawmakers and judges for not bringing more criminal cases against individuals following the collapse in housing prices and ensuing market turmoil. In August, Holder retracted a public statement after Bloomberg News reported that the department had inflated its track record of mortgage-fraud prosecutions.

Holder’s department “did not uniformly ensure that mortgage fraud was prioritized at a level commensurate with DOJ’s public statements about the importance of pursuing financial fraud cases in general, and mortgage fraud cases in particular,” the inspector general’s office said in a statement.

Low Priority

Horowitz found that mortgage fraud was a low priority or wasn’t a priority at all in FBI field offices including New York, Miami, Los Angeles and Baltimore, according to the report.

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

The Justice Department acknowledged last year that it had significantly overstated its performance, sometimes attributing older mortgage-fraud prosecutions to an initiative that began in 2011. Initial statistics, which were later corrected, were released at a press conference with two cabinet officials in attendance just weeks before the 2012 election.

Holder, speaking at the October 2012 press conference, said that the results indicated a “historic, government-wide commitment to eradicating mortgage fraud and related offenses across the country.”

Restated Statistics

The FBI in August restated statistics from the year-long mortgage-fraud initiative, lowering the number of people criminally charged to 107 from 530. Agencies were asked to correct victims’ total losses to $95 million from an estimated $1 billion, and the number of victims found to 17,185 from more than 73,000. The department also altered a transcript of Holder’s remarks on its website.

The release of “significantly flawed” information at the October 2012 press conference showed a “serious failure” to vet information that was being made public, the watchdog said.

A 2010 initiative called “Operation Stolen Dreams,” which was touted as “the largest collective enforcement effort ever brought to bear in confronting mortgage fraud,” may have contained similar errors, the report suggests.

Representative Elijah Cummings, the top Democrat on the House Committee on Oversight and Government reform, said he was “deeply troubled” by the inspector general’s findings and will seek a briefing with Holder to discuss the report.

IG Recommendations

Horowitz made seven recommendations that include correcting prior public statements and materials that used inaccurate data as well as notifying “key stakeholders” of the changes.

Deputy Attorney General James Cole, in a letter to Horowitz that was released with the report, said the department would look into whether more information should be corrected.

The erroneous reporting “does not detract from the successes that the Department achieved during the audit period of 2009 to 2011,” Cole said in the letter. Mortgage fraud convictions rose to 1,118 in 2011 from 555 in 2009, and the department brought “significant criminal and civil enforcement actions against company officials,” Cole said.

To contact the reporters on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net; Phil Mattingly in Washington at pmattingly@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net Joshua Gallu, Gregory Mott

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