Even as several state attorneys general seek to settle with five major banks over the robo-signing of mortgage documents, a group of 55 Justice Department attorneys and other government officials from all over the country have joined up to investigate the formation and selling of mortgage-backed securities. The mortgage fraud task force will investigate how mortgages were securitized and sold, a practice that contributed to the downturn in the U.S. economy. While there is significant overlap in the conduct being discussed in the settlement and the actions being investigated by this task force, part of the difference will be a new focus on filing criminal charges against individuals who participated in the mortgage-backed securities market.
The banking industry has been under heavy scrutiny related to a wide range of behaviors involving mortgages. In addition to the improper handling of mortgages, bank executives may have made fraudulent representations regarding mortgages to secure a superior rating for mortgage backed securities. This task force is designed to investigate false representations regarding these securities and punish the bank officials who were involved.
Critics of the action suggest that the settlement that has been under discussion for quite some time could fall apart, as this appears to be an investigation of the same conduct that bank representatives thought they would receive immunity for. They believe that the government is backing out on representations made during the negotiations so that this task force, mentioned by President Obama in his State of the Union address last Wednesday, can make headlines with high profile criminal indictments.
For those involved in the mortgage-backed securities market, the task force represents a significant threat. Many of the practices that were commonplace at the time may be viewed with suspicion and anger in the current climate. Those who find themselves under investigation would be wise to seek criminal defense counsel immediately.
Source: The Wall Street Journal, "Mortgage fraud task force launched," by Ronald D. Orol, 27 January 2012