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Last updated: March 13, 2014 7:22 pm
The US Department of Justice has been criticised for “immensely” overstating the success of a homeowner fraud programme and failing to prioritise mortgage fraud, according to an internal watchdog.
An audit by the DoJ’s inspector general into the agency’s efforts to investigate mortgage fraud from 2009 to 2011, the years following the financial crisis, found the “DoJ did not uniformly ensure that mortgage fraud was prioritised at a level commensurate with its public statements”.
It found the DoJ overstated the results of a 2011 initiative targeting fraud against distressed homeowners. In an October 2012 press conference led by Eric Holder, attorney-general, the DoJ said 530 individuals were charged for frauds exceeding $1bn.
In reality, the audit found, only 107 people were charged for distressed homeowner frauds totalling $95m, 91 per cent lower than stated. The audit said DoJ officials almost immediately became aware of problems with the statistics but failed to correct public statements for 10 months.
The audit focused on the DoJ’s internal case management system, which is used to track investigations, stating it did not allow for a “complete or reliable assessment of DoJ’s mortgage fraud efforts”.
Questions over the accuracy of the statistics came after news organisations sought a list of the cases behind the distressed homeowner initiative following the 2012 press conference.
Within a month, DoJ officials discovered “significant errors and inaccuracies existed with the information that was reported publicly”. Many cases did not meet the definition of a distressed homeowner fraud, others included convictions rather than new cases, while others fell outside of the timeframe stated for the programme.
According to the audit, the director of the Financial Fraud Enforcement Task Force and press secretary involved in the release told the inspector general they had “no confidence” in the figures reported at the press conference.
“Nevertheless, we found that the department continued to cite these seriously flawed statistics in mortgage fraud press releases that it issued in the ensuring months,” the report said.
Even at a time of constrained budget resources, the department has dedicated significant manpower and funding to combating mortgage fraud
- DoJ spokeswoman
The audit also revealed that the Federal Bureau of Investigation, the DoJ’s investigative arm, ranked mortgage fraud as its lowest criminal threat over that time period and reduced the number of agents investigating mortgage fraud. The low priority came despite the DoJ receiving $196m in funding earmarked for mortgage investigations.
The DoJ rebutted some of the audit’s findings, which are at the core of larger criticisms of law enforcement’s focus on holding to account individuals and institutions responsible for the financial crisis.
“The facts regarding the department’s work on mortgage fraud tell a much different story than this report. In the time period in question, the number of mortgage fraud indictments nearly doubled, and the number of convictions rose by more than 100 per cent,” said Ellen Canale, a DoJ spokeswoman.
“Even at a time of constrained budget resources, the department has dedicated significant manpower and funding to combating mortgage fraud,” she said.
According to FBI statistics included in the report, convictions on mortgage fraud offences rose from 555 in 2009 to 1,087 in 2011. New cases fell from 1,771 to 599 over the same period.
The audit credited the DoJ for participating on 90 local task forces and manning working groups focusing on the area.
An earlier mortgage initiative known as Operation Stolen Dreams was not audited, the inspector general said, but it recommended the DoJ examine the data to determine if a correction to those statistics and public statements was necessary. The DoJ said in a response attached to the IG report that it would conduct a review with the FBI.
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