Background

In his January 24, 2012, State of the Union address, President Barack Obama announced the creation of a new law enforcement task force targeting financial crimes. Specifically, President Obama tasked Attorney General Eric Holder Jr. with creating a special group of federal and state prosecutors to expand investigations into the “abusive lending and packaging of risky mortgages that led to the housing crisis.”1

Impact of Initiative

The scope of the new initiative, and the resulting impact on the home loan servicing industry, is still somewhat unclear at this point. What is clear is that federal and state enforcement agencies are taking swift action in this area. The Justice Department recently announced a new initiative for the task force targeting fraud specific to residential mortgage-backed securities (RMBS).2 Attorney General Holder announced that investigators have already issued civil subpoenas to 11 financial institutions relating to this initiative with the prospect that “more will follow.”

It is difficult to predict where this new initiative, which is a part of the larger Financial Fraud Enforcement Task Force, goes from its RMBS focus. What is apparent, however, is that the DOJ will be devoting significant time and resources into investigating and prosecuting all types of mortgage fraud. In response to the President’s directive, on Friday, January 27, 2012, Attorney General Holder stated “that we will continue to devote significant resources to combating financial fraud and be as aggressive and creative as we can in holding accountable those who, in violating the law, contributed to the financial crisis.”3

An example of other enforcement activity in this area is the Consumer Financial Protection Bureau (CFPB).4 Since the CFPB became operational, it has announced or performed a series of wideranging initiatives concerning mortgage lending abuses, including:

  • creation of a whistleblower program, including a toll-free phone number and email address, welcoming any source of information pertaining to potential consumer financial crimes in order to expedite investigations and prosecutions;
  • enaction of broad-sweeping supervisory initiatives concerning the practices of both banks and nonbanks, such as those engaged in mortgage origination, brokering, servicing, loan modification, and foreclosure relief, to generally ensure compliance with federal consumer financial protection laws;
  • announcement of a law enforcement partnership with the Department of Defense and the Federal Trade Commission to develop a database aimed to track and prosecute companies and individuals repeatedly targeting military personnel relating to consumer financial fraud; and
  • participation in a joint task force targeting Home Affordable Modification Program-related abuses.

Using the CFPB as a predictor, it is safe to say home loan servicing institutions can expect a significant increase in both government investigations and prosecutions relating to their consumer lending practices under this task force beyond wrongdoing specific to the packaging and selling of RMBS.

In the face of such uncertainty, mortgage lending and service institutions will greatly benefit from the assistance of counsel with a breadth of expertise in the field of mortgage fraud and abuse investigations.