Our View: No justice coming as top players remain unscathed in mortgage fraud

03/24/2014 4:43 PM

03/24/2014 4:45 PM

Despite all the fraud committed and money stolen in the housing crisis and crash of 2008, the masters of Wall Street won’t be subjected to perp walks now, or probably ever.

The U.S. Justice Department’s inspector general offered an explanation in a stinging report issued earlier this month: The FBI in several cities didn’t classify mortgage fraud as a top priority.

The report also criticized the Department of Justice for hyping its success in 2012, vastly overstating the number of cases it had brought and the amount of money that was involved.

“Specifically, the number of criminal defendants charged as part of the initiative was 107, not 530 as originally reported,” the report said. Worse, the department was slow in correcting the mistake.

Upon taking office in 2009, President Barack Obama’s administration was slow to confront the lenders who fueled the crash of 2008 with their reckless and sometimes illegal practices, and the Wall Street investment houses that packaged and marketed toxic assets as securities. The bond rating firms – whose ratings were relied upon by banks, nations and other investors – were at the very least unethically lax in their responsibility to rate the bonds based on those virtually worthless underlying securities.

The administration later became serious. Clearly, the number of mortgage fraud convictions increased from fewer than 600 in 2009 to more than 1,100 in 2011 nationally. But the administration was late in becoming serious. And there is some question about just how serious the administration became.

The inspector general said its investigators “found mortgage fraud to be a low priority, or not listed as a priority, for the FBI field offices we visited, including Baltimore, Los Angeles, Miami and New York.”

There are obvious exceptions. The inspector general apparently didn’t focus on efforts in the Eastern District of California. This is odd, given that some of the worst fraud took place in the Central Valley – i.e., Modesto, Merced and Stockton.

This is where mortgage-related fraud did become a priority. The Justice Department’s $13 billion civil settlement with JPMorgan Chase in a mortgage-based securities fraud case stemmed from work by U.S. Attorney Benjamin B. Wagner’s office in Sacramento. The Sacramento office of the FBI listed mortgage fraud as its highest white-collar priority. Feds in this region have indicted 342 people on mortgage-related fraud cases and won notable convictions.

In Fresno last month, Carl Cole, a Bakersfield real estate broker, was sentenced to 17 years in prison and ordered to pay $28 million in restitution for fraud involving falsifying loan documents and inflating prices by using straw buyers to purchase homes from 2004 to 2007.

As the crisis fades and the statutes of limitations kick in, the Justice Department is shifting to other pressing issues.

JPMorgan’s stock was trading at about $52 a share, near its 52-week high, when the feds announced the $13 billion settlement in November. Friday, its stock closed at higher than $60 a share.

The people at the top remain unscathed. In fact, they’re just getting richer.

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