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Obama's Mortgage Fraud Task Force Under Fire

politico.comMay 22, 2012

By Darren Samuelsohn

President Barack Obama used his January State of the Union address to show he’s on top of the housing crisis, announcing a new “special unit” to investigate mortgage fraud.

But the much-ballyhooed group is now under fire from housing advocates and liberal Democrats who say it lacks the muscle and White House backing to take on Wall Street defendants who drove the economy off a cliff.

It’s the latest example of the administration’s fitful efforts to take command of a complex crisis involving Wall Street shenanigans and suffering homeowners. High-profile announcements haven’t always been followed by actions immediately obvious to voters, especially in battleground states with soaring foreclosure rates such as Nevada, Colorado, Florida, Ohio and Wisconsin.

“People are very angry that the only person who’s been to prison is Martha Stewart,” said Democratic pollster Celinda Lake, referring to the insider trading charges against the home-improvement celebrity.

A Public Policy Polling survey released last week by the Campaign for a Fair Settlement, a coalition of housing activists, showed a majority of likely voters had a negative view of Obama’s housing efforts in five swing states: Arizona, Florida, Nevada, North Carolina and Pennsylvania.

Members of the liberal activist group CREDO Action have made more than 3,000 calls since March to the White House and Obama’s Chicago campaign headquarters urging the administration to assign more investigators to the mortgage fraud task force. About 50 struggling homeowners also protested this month outside an Obama fundraiser at George Clooney’s house in Los Angeles.

“We’re not talking about putting people in jail by executive order,” said Becky Bond, political director at CREDO Action. “We’re just talking about putting a couple thousand investigators on the case. We believe if there’s a full investigation, that’ll result in criminal charges.”

Senior administration officials and New York Attorney General Eric Schneiderman said they’re busy behind the scenes doubling their team to more than 100 federal and state financial experts and drawing on staff in 10 U.S. attorneys offices around the country. Matthew Stegman, an assistant U.S. attorney, has been tapped as the group’s lead coordinator, according to three sources familiar with the task force’s work.

The unit has also delivered more than 20 civil subpoenas, collected more than a million documents and deposed many witnesses as it digs through the work of bankers, mortgage brokers, appraisers and others who from about 2004 to 2007 helped millions of Americans buy homes they couldn’t afford at prices that didn’t match their property values — all while bundling the mortgages into securities for sale to investors.

But that’s about all the administration will say at this point about the group, officially called the Residential Mortgage-Backed Securities Working Group. Government officials building potential civil and criminal cases are resistant to the media spotlight so early in the investigation. They understand Americans are angry, but they say proving there’s been fraud is another matter entirely.

“The fact they may look around and not see a particular [case] being filed is not the appropriate metric at this early stage of the effort of the working group, but that shouldn’t be mistaken for a lack of progress,” said Robert Khuzami, director of enforcement for the Securities and Exchange Commission and one of five co-chairs on the mortgage fraud task force.

The SEC, he added, has been working cases over the past 18 months involving more than 100 individuals and entities, 55 CEOs, CFOs and other senior corporate officers. It’s also amassed $2 billion in penalties and other financial relief from some of the country’s largest banks and lenders, including Countrywide, JPMorgan, Freddie Mac and Fannie Mae.

Obama didn’t mention the mortgage fraud task force during a stop this month at a private residence in Reno, where the topic of the day was helping underwater homeowners refinance their mortgages.

But senior administration officials say he’s given the housing issue priority, as shown by the largest joint settlement in U.S. history, a $26 billion agreement reached in February with mortgage providers, 49 state attorneys general and the DOJ.

That deal was designed to give relief to about 2 million underwater homeowners who lost their homes in the so-called “robo-signing” scandal involving the nation’s largest banks and loan services that used forged documents and false information to speed foreclosures.

Other Obama efforts include a program that’s helped more than 1 million distressed homeowners escape default and foreclosure by lowering monthly payments. The same template has helped nearly 3 million more through other government and private services, a dent into the problem for some 11 million Americans who owe more on their mortgages than their homes are worth.

“The president made the decision to put this in his State of the Union,” a senior White House official said of the task force. “It is a serious priority for us. That’s certainly clear to everybody involved and the president’s commitment to this is clear to everybody involved.”

But housing advocates aren’t impressed. They note the investigative team that dug into Enron had about 100 people, and the one for the Savings & Loan scandal had more than 1,000.

“Put me in the camp who are pressing for more action, who are skeptical of it going fast enough but are willing to be surprised,” said Massachusetts Institute of Technology professor Simon Johnson, a former chief economist at the International Monetary Fund. “Maybe Jamie Dimon just sped things up” when the CEO at JPMorgan acknowledged a $2 billion trading loss, rekindling public anger over the financial crisis.

Retiring Rep. Brad Miller (D-N.C.), who considered resigning from Congress early to become the group’s lead coordinator, said that staffing shortfalls would become obvious once the first Wall Street defendant got hit with a criminal charge.

“If there are criminal prosecutions, every defendant would have a defense team that would make the O.J. team look like a public defender that’s two years out of school and handling 100 other cases at the same time,” he said.

A government source working on housing issues said the unit is struggling in part because of a lack of commitment from the White House since its roll out in the State of the Union, citing a leadership vacuum since DOJ Associate Attorney General Thomas Perrelli left the Obama administration in February.

“It’s not happening at the level that it should be happening,” the source said. “There’s no person with juice at the federal level that is banging heads and making sure things are happening the way they should.”

Tony West, DOJ’s acting associate attorney general, said in an interview that law enforcement investigations like this one must be separated from the White House. “That doesn’t mean we all don’t talk to the White House. We’re all part of one administration,” he said. “The key is we do it when it’s appropriate.”

Housing activists also say the task force needs to start moving on any criminal prosecutions and civil penalties before the legal window closes.

“The statute of limitations are ticking like Marisa Tomei’s biological clock in ‘My Cousin Vinny,’” Miller said.

Many of the federal civil and criminal laws at the center of the housing investigation are only open for three to five years, pushing out of range potentially illegal actions that took place before 2007. But federal officials are also considering an obscure civil law passed after the S&L scandals in the 1980s that allows for a 10-year statute of limitations.

Schneiderman secured several “tolling” agreements with potential defendants, an arrangement that freezes the legal clock.

Yet progressives are directing some of their frustration at Schneiderman, the media-savvy Democratic New York AG credited with launching the first investigation last year into the root causes of the housing crisis. Schneiderman — seated in first lady Michelle Obama’s box during the State of the Union — reached a deal in the February settlement with mortgage providers that preserved the ability to pursue enforcement actions.

“So whither the task force? Did AG Schneiderman take a good gamble, or is he just being a tool?” asked the liberal blog Firedoglake in late April.

“Schneiderman has to be able to live up to that promise or he needs to be able to step aside, to step off his investigation if it’s not really happening,” said Tracy Van Slyke, the Chicago-based co-director of the New Bottom Line, a coalition of community, labor and religious groups helping underwater homeowners.

Schneiderman shrugs off the calls for him to consider leaving the mortgage fraud task force. He said in an interview that he signed up in part to get access to a larger staff and even wider circles of jurisdiction that include the DOJ, the SEC, the Consumer Financial Protection Bureau, the Department of Housing and Urban Development and the inspector general for the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.

“I’m by nature an impatient guy. I always want things to move fast,” Schneiderman said. But he added, “This is the only way we’re going to get this done.”


Back to May 2012 Archive

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