published Friday, January 27th, 2012

A push on mortgage fraud

President Obama’s promise in his State of the Union address to push a vigorous new investigation into the mortgage abuses that spiked home loans, stuffed the toxic mortgage securities floated by Wall Street and led to the financial meltdown of 2008 is welcome, but suspect.

It comes a bit late in the wake of the housing crisis. It also follows an earlier similar promise that has appeared to fizzle, even as paltry settlements by the Securities and Exchange Commission spelled out how toxic billion-dollar mortgage securities were deceptively bundled and sold by Wall Street investment banks that made fortunes by deviously trading against their own clients and securities.

Those deals, and surely many others, beg investigation for criminal fraud — actions the SEC has said it was unequipped to pursue — and far larger financial penalties than have been paid. Some old-fashioned jail terms for well-heeled crooks in expensive suits certainly appear to be in order.

Aggressive, unrelenting pursuit of suspected criminality by investment bankers and by deceptive mortgage brokers across the country should have been accomplished much earlier. The fact that widespread mortgage abuse wasn’t pursued in a criminal context has eroded the administration’s credibility, and left the impression that Wall Street’s masters, and the banks and brokers that fed their greed, could simply waltz away with their ill-gotten gains while millions of Americans were pushed into mortgage foreclosures, or stretched to the breaking point by underwater mortgage values in houses they can’t sell.

Various efforts by the administration to get big banks to take a haircut on troubled mortgages by reducing mortgage loan values and payments have also failed to produce promised relief at a meaningful level. That owes partly, to be sure, to Republican support for unyielding banks — never mind their cushy bailout terms — and GOP opposition to stiff mandates and vigorous probes in the banking industry.

Administration officials argue that the original probe never ended; that it just appeared to fade while various tracks of the investigation were playing out, and while agents were busy sifting through millions of documents and deals. In any case, the administration will clearly be judged by the outcome of this election-year promise — and the clock will run fast.

Obama sought to give credence to his new investigative thrust by naming Eric T. Schneiderman, a New York attorney general who is widely respected for opposing settlements by big investment banks and mortgage lenders that he believed wrongly shorted tax payers and mortgage holders.

Schneiderman’s sense of fairness is certainly on point. Millions of home buyers who got caught up in the mortgage bubble were deceptively lured into mortgage deals with big balloon payments and hidden interest increases that brokers knew they couldn’t afford. Brokers worked the loans, however, because regional banks could make money rolling them to bigger lenders — i.e., Countrywide — and on to Wall Street’s bundlers, who were greedily, deliberately ginning up toxic mortgage-based securities that they knew could be kited — and possibly bet against — in the bubble market that peaked in 2006-07.

There’s no question that the American public needs to see the financial system’s unethical players held accountable, and wronged mortgage holders and investors made whole — or at least given substantial recompense. If the Obama administration’s promised probe can make good progress in that direction, the effort will be imminently worthwhile.

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Indeed, what many people don't realize is that the real problem of the government in the housing crisis was not enough regulation to prevent criminal abuses, not too much regulation.

When you have banks sending sworn documents to the courts that are false, they are engaging in criminal behavior, and they should be punished, right? We do favor law and order, don't we?

A pity banks can't be put in jail.

January 27, 2012 at 10:09 a.m.
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