Criminal Cases Against Mortgage Leaders Unlikely, Despite Subprime Crisis
Updated: Although the FBI and U.S. Department of Justice are reportedly investigating mortgage industry leaders after a foreclosure crisis sparked by failing subprime loans, criminal cases against them appear unlikely.
For one thing, because of the complexity of the situation, it will probably take years to sort the situation out. For another, it isn’t clear that industry leaders participated in any criminal wrongdoing such as the widespread fraud that has reportedly taken place in certain markets, Reuters explains. As discussed in earlier ABAJournal.com posts, groups of professionals, sometimes including lawyers, have swindled mortgage lenders out of millions of dollars via schemes that involved inflated appraisals and fictitious buyers.
Mortgage lenders have clearly lost money, and some investors are contending that they were misled about the value of mortgages “securitized” into large pools for resale. But this is in all likelihood an issue for the U.S. Securities and Exchange Commission to investigate civilly rather than a subject for criminal prosecution, according to law professor Peter Henning of Wayne State University.
“I don’t think we’ll see high-level people involved because it’s hard to identify exactly what went wrong,” he tells the news agency. “They are going to have to find the fraud. Losing billions of dollars is assumed to be bad, but that doesn’t make it a crime.”
Related coverage:
Bloomberg: “AIG’s sub-prime losses spur federal probe.”
Bloomberg: “Geithner Urges `Unified’ Supervision of Finance Firms”
Wall Street Journal (sub. req.): “Geithner Pushes for Tougher Rules, Supervision to Prevent Future Crises”
Updated at 1:20 p.m. to link to another Bloomberg article.
