IG: Administration overstated mortgage fraud crackdown efforts

The Justice Department repeatedly overstated its effort and effectiveness in cracking down on mortgage fraud, according to an internal investigation.

A report released Thursday by the Justice Department’s inspector general found that statistics regarding the crackdown were “substantially overstated,” and the department continued to cite them months after they knew the data was flawed.

In October 2012, Attorney General Eric Holder said the task force mandated by the president to focus on the issue had resulted in 530 criminal defendants, tied to cases involving 73,000 homeowners victims and total losses of over $1 billion.

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The IG said in its report that it requested documentation to back up those claims shortly afterwards, and learned a month later that DOJ officials were “concerned with the accuracy of the statistics.”

When all was said and done, the number of criminal defendants dwindled to 107 people, the total victims dropped to just over 17,000, and the total estimated losses was just $95 million — 91 percent lower than the original claim.

In August, the Justice Department added a disclosure to its original press release, saying that the initial version “inadvertently contained inaccurate numbers.” It said a number of defendants included in the initial figure were actually subjected to other legal actions, and some were tied to mortgage fraud, but not the result of the task force’s work.

While the Justice Department eventually updated its public statements with the real numbers, the IG report criticizes the agency for continuing to cite them publicly for 10 months after learning of the issues.

The watchdog also claimed investigators did not make mortgage fraud as high a priority behind the scenes as it was touted in public. While there were some examples, the Justice Department focused on the matter, such as the collaboration with more than 90 local task forces; overall it appeared the matter was less important than publicly suggested.

The IG found that the FBI’s criminal investigative division ranked mortgage fraud as its lowest criminal threat in its lowest threat crime category. And in several FBI field offices, mortgage fraud was either listed as a low priority or not at all. The IG also had difficulty determining exactly how many mortgage fraud cases were making their way through the courts. U.S. attorneys would frequently group such charges with other criminal activities, making it difficult to single out efforts to crack down on mortgage crime. The watchdog recommended the task force, led by the Justice Department, improve its data collection methods and review other public materials to make sure the information is accurate.

The IG’s findings came after a Bloomberg report originally discovered the numbers had been inflated by including cases that happened before the task force was formed — including one before President Obama was even elected.

The president specifically said he wanted the administration to take a hard look at illegal activity in the housing market. He unveiled the team devoted to the issue in his 2012 State of the Union address, saying it would “hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.”

Wall Street critics on the left were heartened by the announcement, and his pick of New York Attorney General Eric Schneiderman to lead it. Schneiderman had developed a reputation as being particularly aggressive toward banks, but as time passed and few developments emerged, some of those original backers began to grumble.

In particular, Wall Street skeptics have been hotly critical of the administration for failing to produce substantial criminal charges against individual bank executives for their role in the financial collapse.

The Justice Department did not respond to a request for comment on the IG’s report.