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December 22, 2014

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The mortgage fraud fraud

Joe Nocera on the lack of real accountability in the mortgage crisis

I got an email 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 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 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 IRS who seemed offended that Charlie was an ultramarathoner without a steady day job. The IRS 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 IRS 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 U.S. 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 by President Barack Obama to investigate the mortgage-backed securities issued during the bubble — complained publicly that he wasn’t getting the resources he needed from the Justice Department. And, of course, Thursday, a federal judge declared a mistrial on five charges of campaign finance fraud and conspiracy in the trial of 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.

Joe Nocera is a columnist for The New York Times.

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  1. There is a difference between the Enron fraud case during the Bush administration, and the mortgage fraud under the Obama adminstration.Enron at that time was the only company involved in fraud, brought to the attention of federal prosecuters who went after them.Mortgage fraud involved almost every major bank and lending institution in the country.Pick your choice of who you wanted to prosecute in this national scandal.We could empty all of our prisons of current convicts,and replace them with newly convicted mortgage fraud convicts and not have enough room for all of them.That is if we went after all the crooks who brought this country to it's knees.

  2. Sam I agree that there is plenty of blame to go around. It is not just the banks, Wall St., the "fat cats" and the greedy wealthy. They make great talking points by so many were willing to be involved right down to the liar loan applicants and the ninja loan applicants.

  3. jrtsr,Like i said we don't have enough prisons to hold all the guilty parties envolved in this nationwide scam.From the biggest guy to the smallest guy,as you pointed out (liar loan Applicants).

  4. I never expected our Justice Department to go after the root cause of our economic meltdown...if they did...the phone calls from Capitol Hill would NEVER STOP COMING......even our AG here folded like a cheap house of cards in the end when attempting to prosecute the Wall Street and Banking crooks.....the inmates are running the asylum.....and we the people, end up in CRAP to our necks..........the ENTIRE political system is broken.........by the people and for the people has become.....screw the people.......we have been elected....we will work towards re-election....and our constituents be damned.......