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Audit: Justice Department, FBI, failed to jail mortgage fraudsters

Inspector General publicly shames law enforcement

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Between 2009 to 2011, leadership at the Department of Justice stated publicly and repeatedly that tackling mortgage fraud was a top priority.

Today, that department's Inspector General released an audit and concluded, despite the above claim, there is little proof the promise of high-levels of mortgage fraud prosecution ever took place.

"We… determined during this audit that DOJ did not uniformly ensure that mortgage fraud was prioritized at a level commensurate with its public statements," said the audit, released today from Inspector General Michael Horowitz.

What did take place, however, was a high level of mishandling and lack of efficient law enforcement from a judicial level to effectively prosecute mortgage fraud cases, according to the audti.

The Federal Bureau of Investigation criminal investigative division in particular was lacking in prioritizing mortgage fraud. Despite nearly $200 million in funding to chase mortgage fraud, the crime remained at the lowest priority and was listed in a low-crime category.

Additionally, the Executive Office of United States Attorneys utilized a poor case-management system. Assistant attorneys informed Justice auditors that mortgage fraud cases were often misclassified and generally underreported.

"They further explained that mortgage fraud cases are often coupled with other criminal activities and that, when initiating a case file, an [assistant attorney] may fail to include the mortgage fraud code if it is not the leading charge in a case," the audit states.

"In addition, EOUSA is unable to track the complexity of criminal cases or whether the individual defendants prosecuted were high-level officials. Capturing such information would allow DOJ to better understand its overall effort and to better evaluate its performance in targeting high-profile offenders."

One specific example happened on October 9, 2012.

There is an interagency division called the Financial Fraud Enforcement Task Force. It is meant to play an important role in combating mortgage fraud through civil litigation and criminal investigation and prosecution.

On this day in October it gave a press conference patting itself on the back:

"During this press conference, the Attorney General announced that the initiative resulted in 530 criminal defendants being charged, including 172 executives, in 285 criminal indictments or informations filed in federal courts throughout the United States during the previous 12 months. The Attorney General also announced that 110 federal civil cases were filed against over 150 defendants for losses totaling at least $37 million, and involving more than 15,000 victims. According to statements made at the press conference, these cases involved more than 73,000 homeowner victims and total losses estimated at more than $1 billion."

Actually, the audit found only 107 alleged mortgage fraudsters were charged, not 530.

Affected homeowners also lost $95 million, far short of the $1 billion claim.

The IG's office made the appropriate parties aware of the statistical flaws after investigating the veracity of the claims. Nonetheless, the Department of Justice continued to cite the inflated numbers in press releases for another 10 months.

"We believe the Department should not have continued to issue press releases with these statistics once it became aware of the serious flaws," the audit states.

In August 2013, Justice and FBI finally retracted the claims.

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