[Vision2020] The Mortgage Fraud Fraud

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

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June 1, 2012
The Mortgage Fraud Fraud By JOE NOCERA

I got an e-mail the other day from Richard Engle telling me that his son
Charlie would be getting out of prison this month. I was happy to hear it.

Charlie’s ordeal isn’t over yet, of course. When he leaves prison on June
20, Charlie, 49, will move temporarily to a halfway house, after which he
will be on probation for another five years. And unless he can get the
verdict overturned, he will have to spend the rest of his life with a
felony on his record.

Perhaps you remember Charlie Engle. I wrote about
him<http://www.nytimes.com/2011/03/26/business/26nocera.html?_r=1&pagewanted=all>not
long after he entered a minimum-security facility in Beaver, W.Va., 16
months ago. He’s the poor guy who went to jail for lying on a liar loan
during the housing bubble.

There were two things about Charlie’s prosecution that really bothered me.
First, he’d clearly been targeted by an agent of the Internal Revenue
Service who seemed offended that Charlie was an ultramarathoner without a
steady day job. The I.R.S. conducted “Dumpster dives” into his garbage and
put a wire on a female undercover agent hoping to find some dirt on him.
Unable to unearth any wrongdoing on his tax returns, the I.R.S. discovered
he had taken out several subprime mortgages that didn’t require income
verification. His income on one of them was wildly inflated. They don’t
call them liar loans for nothing.

Charlie has always insisted that he never filled out the loan document —
his mortgage broker did it, and he was actually a victim of mortgage fraud.
(The broker later pleaded guilty to another mortgage fraud.) Indeed,
according to a recent court filing by Charlie’s lawyer, the government
failed to turn over exculpatory evidence that could have helped Charlie
prove his innocence. For whatever inexplicable reason, prosecutors really
wanted to nail Charlie Engle. And they did.

Second, though, it seemed incredible to me that with all the fraud that
took place during the housing bubble, the Justice Department was focusing
not on the banks that had issued the fraudulent loans, but rather on those
who had taken out the loans, which invariably went sour when housing prices
fell.

As I would later learn, Charlie Engle was no aberration. The current meme —
argued most recently by Charles Ferguson, in his new book “Predator Nation”
— is that not a single top executive at any of the firms that nearly
brought down the financial system has spent so much as a day in jail. And
that is true enough.

But what is also true, and which is every bit as corrosive to our belief in
the rule of law, is that the Justice Department has instead taken after the
smallest of small fry — and then trumpeted those prosecutions as proof of
how tough it is on mortgage fraud. It is a shameful way for the government
to act.

“These people thought they were pursuing the American dream,” says Mark
Pennington, a lawyer in Des Moines who regularly defends home buyers being
prosecuted by the local United States attorney. “Right here in Des Moines,”
he said, “there was a big subprime outfit, Wells Fargo Financial. No one
there has been prosecuted. They are only going after people who lost their
homes after the bubble burst. It’s a scandal.”

The Justice Department has had a tough run recently. Last week, Eric
Schneiderman, the New York attorney general — who was recently given a
role<http://www.dnainfo.com/new-york/20120125/manhattan/eric-schneiderman-lead-obamas-new-mortgage-abuse-unit>by
President Obama to investigate the mortgage-backed securities issued
during the bubble — complained
publicly<http://online.wsj.com/article/SB10001424052702304065704577424571073791362.html>that
he wasn’t getting the resources he needed from the Justice Department.
And, of course, on Thursday, a federal judge declared a
mistrial<http://www.nytimes.com/2012/06/01/us/edwards-jury-returns-not-guilty-verdict-on-one-count.html>on
five charges of campaign finance fraud and conspiracy in the trial of
the former presidential candidate John Edwards.

In the Edwards case, the Justice Department spent tens of millions of
dollars, and trotted out novel legal theories, to prosecute a man who was
essentially trying to keep people from discovering that he had had a
mistress and an out-of-wedlock child. Salacious though it was, the case has
zero public import. Yet this same Justice Department isn’t willing to use
similar resources — and perhaps even trot out some novel legal theories —
to go after the pervasive corporate wrongdoing that gave us the financial
crisis and the Great Recession. (I should note that the Justice Department
claims that it “will not hesitate” to prosecute any “institution where
there is evidence of a crime.”)

Think back to the last time the federal government went after corporate
crooks. It was after the Internet bubble. Jeffrey Skilling and Kenneth Lay
of Enron were prosecuted and found guilty. Bernard Ebbers, the former chief
executive of WorldCom, went to jail. Dennis Kozlowski of Tyco was
prosecuted and given a lengthy prison sentence. Now recall which Justice
Department prosecuted those men.

Amazing, isn’t it? George W. Bush has turned out to be tougher on corporate
crooks than Barack Obama.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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