<div class="header">
<div class="left">
<a href="http://www.nytimes.com/"><img src="http://graphics8.nytimes.com/images/misc/nytlogo153x23.gif" alt="The New York Times" align="left" border="0" hspace="0" vspace="0"></a>
</div>
<div class="right">
<a href="http://www.nytimes.com/adx/bin/adx_click.html?type=goto&opzn&page=www.nytimes.com/printer-friendly&pos=Position1&sn2=336c557e/4f3dd5d2&sn1=8a907ae1/15fbc62a&camp=FSL2012_ArticleTools_120x60_1787507c_nyt5&ad=BEMH_120x60_May4_NoText&goto=http%3A%2F%2Fwww%2Efoxsearchlight%2Ecom%2Fthebestexoticmarigoldhotel" target="_blank">
<br></a>
</div>
</div>
<br clear="all"><hr align="left" size="1">
<div class="timestamp">June 1, 2012</div>
<h1>The Mortgage Fraud Fraud</h1>
<span><h6 class="byline">By JOE NOCERA</h6></span>
<div id="articleBody">
<p>
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. </p>
<p>
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. </p>
<p>
Perhaps you remember Charlie Engle. <a title="A March 2011 column" href="http://www.nytimes.com/2011/03/26/business/26nocera.html?_r=1&pagewanted=all">I wrote about him</a>
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. </p>
<p>
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. </p>
<p>
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. </p>
<p>
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. </p>
<p>
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. </p>
<p>
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. </p>
<p>
“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.”
</p>
<p>
The Justice Department has had a tough run recently. Last week, Eric Schneiderman, the New York attorney general — who was <a href="http://www.dnainfo.com/new-york/20120125/manhattan/eric-schneiderman-lead-obamas-new-mortgage-abuse-unit">recently given a role</a> by President Obama to investigate the mortgage-backed securities issued during the bubble — <a href="http://online.wsj.com/article/SB10001424052702304065704577424571073791362.html">complained publicly</a> that he wasn’t getting the resources he needed from the Justice Department. And, of course, on Thursday, a federal judge <a title="A Times article" href="http://www.nytimes.com/2012/06/01/us/edwards-jury-returns-not-guilty-verdict-on-one-count.html">declared a mistrial</a>
on five charges of campaign finance fraud and conspiracy in the trial
of the former presidential candidate John Edwards. </p>
<p>
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.”) </p>
<p>
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. </p>
<p>
Amazing, isn’t it? George W. Bush has turned out to be tougher on corporate crooks than Barack Obama. </p>
<div class="articleCorrection">
</div>
</div>
<br clear="all"><br>-- <br>Art Deco (Wayne A. Fox)<br><a href="mailto:art.deco.studios@gmail.com" target="_blank">art.deco.studios@gmail.com</a><br>