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Is Government's Renewed Push On Mortgage Fraud Too Late?

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Is Government's Renewed Push On Mortgage Fraud Too Late?


Is Government's Renewed Push On Mortgage Fraud Too Late?

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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It's ALL THINGS CONSIDERED from NPR News. I'm Audie Cornish.


And I'm Melissa Block.

Remain aggressive, that's the message Attorney General Eric Holder says he's given to prosecutors around the country, about pursuing wrongdoing by financial institutions; especially wrongdoing related to the financial crisis of 2008.

But NPR's John Ydstie reports with the five-year anniversary of the crisis approaching, the record of prosecutions against high-level Wall Street executives has been dismal.

JOHN YDSTIE, BYLINE: University of Missouri Professor William Black was a federal regulator back during the savings and loan crisis in the late 1980s and early '90s. Following that crisis, Black says, there were over 1,000 felony convictions in cases described by the Justice Department as major, but not so this time around.

WILLIAM BLACK: There have been zero convictions of anybody engaged in the frauds that actually drove this crisis from the elite ranks of Wall Street.

YDSTIE: Columbia University law professor John Coffee concurs.

JOHN COFFEE: There have not been more than a handful of criminal prosecutions, and most of them have involved smaller mortgage banking operations and not major investment banks.

YDSTIE: In fact, this month, the Justice Department revised downward the number of people criminally charged with mortgage fraud in 2012, from well over 500 to just over 100.

So why have there been so few prosecutions related to the financial crisis and virtually no elite Wall Street bankers put in the dock? William Black blames a lack of resources and will. But Professor Jay Brown of the University of Denver says he believes prosecutors would love to bring cases against top bankers.

JAY BROWN: I don't detect a lack of will. I think there are other reasons that explain the lack of cases.

YDSTIE: And one is complexity.

BROWN: These cases are extremely complicated. You know, they involve complicated products, complicated facts, so I think they're sort of hard to bring for that reason.

YDSTIE: Another challenge, says Brown, is tying the wrongdoing to top bank officials, including the CEO, because the banks are so enormous.

BROWN: They have hundreds of thousands of workers. They have trillions of dollars of assets. These top officials are essentially sitting over the top of a small country. And I think it's very difficult to tie them into misbehavior that incurs in some small part of their country.

YDSTIE: While executives may have fostered a culture that spawned wrongdoing, that's not a crime, says Brown. And remember, in criminal prosecutions, guilt must be proved beyond a reasonable doubt. So absent things like email traffic showing an executive knew of wrongdoing, convictions would be difficult.

John Coffee also says early in the financial crisis, regulators may have been worried about damaging weak banks with prosecutions, thereby prolonging the crisis. Coffee says now that banks have returned to profitability, regulators may be more willing to take action.

COFFEE: I think it's also clear that the public's mood is very dissatisfied. They cannot understand the lack of these prosecutions.

YDSTIE: And government officials seem to be responding. Both the Justice Department and the Securities Exchange Commission sued Bank of America this month for fraudulent mortgage origination and securitization practices in the lead-up to the financial crisis. But both of those are civil suits that would involve no jail time for executives. Bank of America denies any wrongdoing. Also, JPMorgan Chase has revealed that the Justice Department is investigating its mortgage-backed securities practices.

But John Coffee points out that the SEC will soon be out of the game because of the five-year statute of limitations on its authority.

COFFEE: If you go back five years from today, we're only a few weeks before the collapse of Lehman Brothers. And that means that any of the conduct preceding the Lehman collapse is now largely beyond the reach of the SEC.

BLOCK: But the Justice Department can bring criminal charges for another five years under FIRREA, the financial reform act passed following the S&L crisis. Attorney General Holder communicated that earlier this week saying: Anybody who's inflicted damage on our financial markets should not be of the belief that they are out of the woods because of the passage of time. However, the hurdles that have prevented these prosecutions before remain, and don't seem likely to go away.

YDSTIE: John Ydstie, NPR News, Washington.

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