Hundreds of criminal defendants allegedly responsible for more than $1 billion in losses have been prosecuted by the federal government over the past year for allegedly committing crimes against distressed borrowers. In addition, hundreds more defendants were hit with civil actions.
On Tuesday, the government released results from its Distressed Homeowner Initiative, the “first-ever nationwide effort to target fraud schemes that prey upon suffering homeowners.”
The initiative was launched on Oct. 1, 2011, by the Federal Bureau of Investigation and ended with the federal government’s fiscal year on Sept. 30. It was launched to help streamline and advance investigations and prosecutions. The FBI is a co-chair of the Financial Fraud Enforcement Task Force’s Mortgage Fraud Working Group.
Fraud targeting distressed homeowners was the focus of the initiative. Related schemes involve collecting huge up-front fees to help prevent foreclosures or transferring title from the borrower to someone connected to the defendants. Loan modification schemes where fees were collected up-front by falsely promising to negotiate loan modifications were also targeted.
A joint announcement from the Department of Housing and Urban Development, FBI, Federal Trade Commission and Justice Department indicated that the initiative yielded 530 criminal defendants who were charged in 285 federal criminal indictments or informations. Among the defendants were 172 executives.
More than 73,000 borrowers allegedly victimized by the defendants suffered losses estimated at more than $1 billion.
Another 110 civil cases were filed against 153 defendants by the Justice Department’s U.S. Trustee Program, the FTC and the Consumer Financial Protection Bureau. Defendants in the actions often made false or abusive filings in bankruptcy court to avoid foreclosure. Those cases involved more than 15,000 victims who suffered more than $37 million in losses.
State attorneys general filed criminal cases against 51 defendants who allegedly caused $2 million in losses. States also filed at least 104 civil enforcement actions against 125 defendants who were responsible for approximately $5 million in losses.
One California foreclosure-rescue scheme prosecuted by the U.S. Attorney’s Office for the Central District of California reportedly victimized 4,000 borrowers.
The government also touted actions by the Treasury Department’s Office of Financial Stability’s Antifraud Unit and the Office of the Special Inspector General for the Troubled Asset Relief Program against more than 900 mortgage rescue websites or web advertisers that were allegedly trying to confuse borrowers about their affiliation with the government.
“But this is only the beginning,” U.S. Attorney General Eric Holder said in a related announcement. “In addition to traditional mortgage fraud crimes, the federal government also has committed substantial resources to identify and prevent other schemes that can negatively affect fragile housing markets — including instances of fraud in the origination, securitization and servicing of mortgage loans; foreclosure public auction bid rigging; and discriminatory lending practices.”
Holder highlighted how the Residential Mortgage-Backed Securities Working Group of the Financial Fraud Enforcement Task Force, through New York’s attorney general, recently filed a civil complaint against JP Morgan Chase & Co. over alleged fraudulent representations by subsidiary Bear Stearns related to due diligence in the issuance of MBS.
