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Paul Kiesel
Paul Kiesel
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When It Comes to Combating Mortgage Fraud, Mukasey is Running in Place

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Attorney General Michael Mukasey rejected the idea on Thursday of creating a national task forced to combat mortgage fraud. Mukasey made it clear that he saw mortgage fraud as a major contributor that is helping exacerbate (if it didn’t help start) the housing crisis.

However, since Mukasey took over as Attorney General last November, he has been unable to deal with the law enforcement aspect of the growing housing crisis. He is satisfied with using local prosecutors’ offices around the country to oversee separate FBI investigations; this could be a costly mistake on so many fronts.

First, he does not see mortgage fraud and the housing crash as equitable to Enron. He made these points clear on Thursday. And he’s right and wrong in his assessment. He’s right because it is WORSE than Enron and wrong because he doesn’t even want to create a task force, which he could at relative minimal cost, through the Justice Department to investigate mortgage fraud more closely and with more resources.

Critics of Mukasey have called, asked and are now begging for the same federal response seen in the Enron case to be applied to the mortgage crisis and the growing number of mortgage fraud related cases and inquiries associated with it.

Congressman Barney Frank sees Mukasey’s remarks as “disappointing.” Representative Frank, whoheadsthe House financial services committee, sees the mortgage crisis as being “worse than Enron, [because] Enron didn’t cause a worldwide recession. This has more innocent victims.” Rep. Frank has a legitimate housing bill that has passed through congress but, unfortunately, it doesn’t have enough votes to prevent it from being vetoed by President Bush.

Overall, mortgage fraud and its frequency indicates a systematic problem that needs to be corrected through regulation. Lenders were able to go out into the market and trick borrowers into mortgages that were doomed to fail (TILA disclosure fraud). They knew these mortgages were doomed to fail as they were knowingly packaging mortgage-backed securities with the knowledge that the quality of the loans were deteriorating. We have seen lenders like Countrywide and Bear Stearns crash and burn over the last year (as Bear Stearns has been acquired by JP Morgan Chase and B of A is acquiring Countrywide), an apparent sign that the way mortgage-backed securities were being packaged over inflated the value of these lenders’ stock. Therefore, the scope of fraud committed by the lenders is even broader than looked upon at first glance, which indicates a need for the White House to take a tougher approach towards mitigating mortgage fraud andincrease the available funds and resouces to combat it effectively.

Mukasey may not want to interject his authority, which he has every right to do, but his recognition of mortgage fraud and his languid approach to dealing with the situation shows that the country is going to have to hold on and wait till the next administration can come in and hopefully clean up this current one’s failures: of lost opportunities.