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Is Government's Renewed Push On Mortgage Fraud Too Late?

npr.org | August 23, 2013

By John Ydstie

"Remain aggressive." That's the message Attorney General Eric Holder says he has given to prosecutors around the country about pursuing wrongdoing by financial institutions — particularly, wrongdoing related to the financial crisis of 2008.

But as the five-year anniversary of the crisis approaches, the record of prosecutions against high-level Wall Street executives has been dismal.

University of Missouri Professor William Black was a federal regulator during the savings and loan crisis in the late 1980s and early '90s. Following that crisis, Black says, there were more than 1,000 felony convictions in cases described by the Justice Department as major. But not so this time around.

"As we speak, the situation remains that there have been zero convictions of anybody engaged in the frauds that actually drove this crisis from the elite ranks of Wall Street," Black says.

Columbia University law professor John Coffee concurs. "There have not been more than a handful of criminal prosecutions, and most of them have involved small mortgage banking operations and not major investment banks," he says.

In fact, this month the Justice Department revised downward the number of people criminally charged with mortgage fraud in 2012 from well over 500 to just over 100.

So why have there been so few prosecutions related to the financial crisis and virtually no elite Wall Street bankers put in the dock? Black blames a lack of resources and will. But professor Jay Brown of the University of Denver says he believes prosecutors would love to bring cases against top bankers.

"I don't detect a lack of will," Brown says. "I think there are other reasons that explain the lack of cases."

One is complexity. "These cases are extremely complicated," Brown says. "They involve complicated products, complicated facts, so I think they're sort of hard to bring for that reason."

Another challenge, says Brown, is tying the wrongdoing to top bank officials, including the CEOs, because the banks are so enormous.

"They have hundreds of thousands of workers; they have trillions of dollars of assets," he says. "These top officials are essentially sitting over the top of a small country. And I think it's very difficult to tie them into misbehavior that [happens] in some small part of their country."

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While executives may have fostered a culture that spawned wrongdoing, that's not a crime, Brown says. And in criminal prosecutions guilt must be proved beyond a reasonable doubt. So absent things like email traffic showing an executive knew of wrongdoing, convictions would be difficult.

Coffee also says that early in the financial crisis regulators may have been worried about damaging weak banks with prosecutions, thereby prolonging the crisis. Now that banks have returned to profitability, regulators may be more willing to take action, he says.

"I think it's also clear that the public's mood is very dissatisfied," Coffee says. "They cannot understand the lack of these prosecutions."

And government officials seem to be responding. Both the Justice Department and the Securities and Exchange Commission sued Bank of America this month, alleging fraudulent mortgage origination and securitization practices in the lead up to the financial crisis. But both are civil suits that would involve no jail time for executives. Bank of America denies any wrongdoing. Also, JPMorgan Chase has revealed that the Justice Department is investigating its mortgage-backed securities practices.

But Coffee points out that the SEC will soon be out of the game because of the statute of limitations on its authority.

"If you go back five years from today, we're only a few weeks before the collapse of Lehman Brothers. And that means that any of the conduct preceding the Lehman collapse is now largely beyond the reach of the SEC," he says.

But the Justice Department can bring criminal charges for another five years under FIRREA, the financial reform act passed following the S&L crisis. Attorney General Holder communicated that earlier this week, saying "anybody who's inflicted damage on our financial markets should not be of the belief that they are out of the woods because of the passage of time."

But the hurdles that have prevented these prosecutions before remain and don't seem likely to go away.


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CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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