Mortgage Bankers Association • Mortgage Fraud
to a broad range of activities that are not fraudulent. Such activities might include a lender’s recommending a loan to a borrower — a process that involves a lender’s subjective judgment — that, after the fact, the borrower decides may not have been in his or her best interest. Even if such judgment calls could be questioned in retrospect, they are not fraudulent. Many lender actions that are not fraudulent are governed by laws and regulations that impose substantial civil penalties for violations. These penalties, as a general matter, are proportionate to the harm caused. If terms are defined too broadly, some actions may be subject to penalties that are disproportionate to any harm caused and far more severe than ever intended.
Repackaging existing laws into a single mortgage fraud statute could have similar unwanted and unforeseen consequences.
In addition to calls for new federal legislation, some have suggested repackaging existing federal law into a single mortgage fraud statute. While the motives for such a reorganization may be commendable, it is difficult to see any benefit such a reorganization would add to the fight against mortgage fraud. Law enforcement officials are sophisticated, educated in the law in this area and familiar with location of the current statutes that apply to mortgage fraud. Rearranging the existing statutes would not improve law enforcement officials’ ability to understand or apply these laws.
The interaction of a new law with existing law may produce unwanted consequences. Since the mail and wire fraud statutes and entity-specific statutes already apply to any case of mortgage fraud, the enactment of a new federal mortgage fraud law could be interpreted as an indication from Congress that the reach of the existing statutes may not be as broad as previously believed. As a result, it is possible to imagine a situation in which coverage of the existing statutes could be restricted by judicial interpretations, thereby restricting law enforcement’s ability to enforce those laws against perpetrators of mortgage fraud. While MBA believes a court should not adopt such a view, it is not possible to predict with any certainty how courts will view the interaction of a new mortgage fraud law with existing law.
While such a repackaging would not enhance the ability of law enforcement officials to combat mortgage fraud, it could have unwanted and unforeseen consequences similar to those discussed above. For example, court decisions interpreting laws applicable to mortgage fraud reference those laws by the law’s title and section number within the United States Code. Changing the title and/or section numbers of these laws may separate the laws from the established body of precedent and confuse judges — who, although generally well versed in the law, are less familiar with these laws than are law enforcement officials. Questions may arise as to whether existing precedent applies to a repackaged law that would be a new Congressional enactment.
The risk of unwanted and unforeseen consequences, combined with the lack of any meaningful benefit from a repackaging of mortgage fraud laws, weighs heavily against such a course.
Mortgage Bankers Association
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