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

Foreclosures increased dramatically as a result of risky subprime loans during the 2000s.
Justin Sullivan
Getty Images
Foreclosures increased dramatically as a result of risky subprime loans during the 2000s.

"Remain aggressive." That's the message Attorney General Eric Holder says he has given to prosecutors around the country about pursuing wrongdoing by financial institutions — particularly, wrongdoing related to the financial crisis of 2008.

But as the five-year anniversary of the crisis approaches, the record of prosecutions against high-level Wall Street executives has been dismal.

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

"As we speak, the situation remains that there have been zero convictions of anybody engaged in the frauds that actually drove this crisis from the elite ranks of Wall Street," Black says.

Columbia University law professor John Coffee concurs. "There have not been more than a handful of criminal prosecutions, and most of them have involved small mortgage banking operations and not major investment banks," he says.

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? 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.

"I don't detect a lack of will," Brown says. "I think there are other reasons that explain the lack of cases."

One is complexity. "These cases are extremely complicated," Brown says. "They involve complicated products, complicated facts, so I think they're sort of hard to bring for that reason."

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

"They have hundreds of thousands of workers; they have trillions of dollars of assets," he says. "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 [happens] in some small part of their country."

While executives may have fostered a culture that spawned wrongdoing, that's not a crime, Brown says. And 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.

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

"I think it's also clear that the public's mood is very dissatisfied," Coffee says. "They cannot understand the lack of these prosecutions."

And government officials seem to be responding. Both the Justice Department and the Securities and Exchange Commission sued Bank of America this month, alleging fraudulent mortgage origination and securitization practices in the lead up to the financial crisis. But both 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 Coffee points out that the SEC will soon be out of the game because of the statute of limitations on its authority.

"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," he says.

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."

But the hurdles that have prevented these prosecutions before remain and don't seem likely to go away.

Copyright 2021 NPR. To see more, visit

John Ydstie has covered the economy, Wall Street, and the Federal Reserve at NPR for nearly three decades. Over the years, NPR has also employed Ydstie's reporting skills to cover major stories like the aftermath of Sept. 11, Hurricane Katrina, the Jack Abramoff lobbying scandal, and the implementation of the Affordable Care Act. He was a lead reporter in NPR's coverage of the global financial crisis and the Great Recession, as well as the network's coverage of President Trump's economic policies. Ydstie has also been a guest host on the NPR news programs Morning Edition, All Things Considered, and Weekend Edition. Ydstie stepped back from full-time reporting in late 2018, but plans to continue to contribute to NPR through part-time assignments and work on special projects.
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