Decidedly absent in the picture are indictments of the bank executives. Banks and financial institutions can commit mortgage fraud any number of ways. One such way is through the use of federally insured mortgages. In order for a lender to be able to federally insure mortgages through FHA loans (loans made available to borrowers who may not meet conventional mortgage standards), the lender must have a quality control plan in place and submit a certification to the federal government for every FHA mortgage it endorses.
The fraud comes in where the bank falsely submits certifications to the federal government. They then secure federal insurance on the loan, which makes the loan easy to resell to investors, with the banks making a hefty profit. This is precisely what Deutsche Bank is being accused of in a recent civil lawsuit filed by the United States government, although no criminal charges are currently pending.
With the exception of Lee B. Farkas, former chairman of Taylor, Bean & Whitaker, in Virginia last month, there have been few indictments and almost no convictions of any of the financial executives responsible for the financial collapse. According to prosecutors, Farkas was responsible for selling $1.5 billion in fake mortgages. Meanwhile, the hedge fund managers at Bear Stearns were acquitted and federal prosecutors dropped the charges against Angelo R. Mozilo, former CEO of Countrywide Financial. The Justice Department seemingly gave up on its investigation of Joe Cassano, former head of AIG. Recent reports show that Richard Fuld, former CEO of Lehman Brothers, will not be charged criminally and he may not even face civil charges. While the Justice Department claims they are still investigating top financial officials’ participation in mortgage fraud, most legal experts agree that these cases become much more difficult to prosecute as time goes by.
This discrepancy between the investigation and enforcement of mortgage fraud among borrowers versus the large scale lenders only proves the point that different rules are being applied to different players. Instead of aggressively pursuing the big fish, the Fed seems intent on targeting the minnows.