How the Government Botched Its Effort to Hold
Wall Street Accountable After the Crisis
The Department of Justice (DOJ)
fell down on many of its efforts to hold Wall Street accountable for mortgage
fraud after the crisis, according to a new audit from the U.S. Department of
Justice Office of the Inspector General (OIG).
The DOJ promised the public that
it would place a priority on going after mortgage fraud. But the report finds
that “DOJ did not uniformly ensure that mortgage fraud was prioritized at a
level commensurate with its public statements.” One telling example is that the
Federal Bureau of Investigation (FBI) ranked mortgage fraud as the lowest
threat in its lowest crime category. The OIG also visited FBI field offices in
Baltimore, Los Angeles, Miami, and New York and found that either it was a low
priority or not even listed as a priority. Meanwhile, the FBI got $196 million
in funding to investigate mortgage fraud between 2009 and 2011, yet the number
of agents doing the investigation decreased in the same time, as did the
pending investigations.
On top of these findings, the OIG
reports that data was so poorly collected at the DOJ that it’s difficult for it
to assess what was going on. And this bad data also led to the department
misleading about its efforts to the public. In October of 2012, Attorney
General Eric Holder announced a press conference that his department had filed
110 federal civil cases that involved more than 73,000 homeowner victims and
total losses of more than $1 billion. When the OIG followed up about these
numbers, it became clear that there were significant errors with them — the
total losses, for example, were $95 million, 91 percent than originally
claimed. Yet the department kept referencing these numbers even after it
realized its mistakes.
The report does have some praise
for the DOJ. It offers two examples of where the department prioritized going
after mortgage fraud: “the Criminal Division’s leadership of its mortgage fraud
working group and the FBI and USAOs’ participation on more than 90 local task
forces and working groups,” it notes.
A spokeswoman for the DOJ also
pointed to the fact that the number of mortgage fraud indictments almost
doubled between 2009 and 2011 and that the number of convictions rose by more
than 100 percent, saying, “As the report itself notes, even at a time of
constrained budget resources, the department has dedicated significant manpower
and funding to combating mortgage fraud.”
But the audit’s findings are
disturbing given the scope of fraud and how little justice homeowners have seen
since the crisis. Prosecutions for financial fraud hit a 20-year low in 2011,
in the wake of a crisis created by risk-taking on Wall Street. Lawmakers
continually prodded the DOJ over what they felt was an attitude that banks were
“too big to jail,” “too big for trial,” or that they had a “get out of jail
free” card.
Meanwhile, the national mortgage
settlement struck in 2012 over servicing abuses has brought very little relief
for homeowners. Two years later, most banks are flouting the terms, as only two
were fully in compliance, and servicers are still rampantly abusing homeowners.
Meanwhile, little of the money set aside to help homeowners dealing with
foreclosure has actually reached them, and some of the checks were so small
homeowners refused to cash them.
Other efforts to hold Wall Street
accountable after a crisis that took as much as $14 trillion — or perhaps even
more — out of the economy haven’t produced many results. Just one financial executive
has been held accountable, while most banks have walked away with settlements
that aren’t nearly as large as they at first may appear. The Securities and
Exchange Commission has won back just $2.7 billion in fines, penalties, and
disgorged profits, and while it started demanding that banks admit to wrong doing
in settlements, there is evidence it may be throwing the towel in on
prosecutions related to the financial crisis.
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