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Mortgage Bankers Association • Mortgage Fraud

where claims are weak or frivolous — create tremendous pressure on lenders to settle (even for large sums) to avoid a potential verdict that, although unlikely, might threaten the lender’s very existence. Indeed, the Supreme Court has noted that “[c]ertification of a large class may so increase the defendant’s potential damages liability and litigation costs that he may find it economically prudent to settle and to abandon a meritorious defense.”52

SUGGESTIONS FOR FEDERAL LEGISLATIVE ACTION THAT WOULD ASSIST IN PREVENTING AND PROSECUTING MORTGAGE FRAUD Federal law can enhance the prevention of mortgage fraud by increasing resources available to law enforcement and facilitating the coordination of federal and state law enforcement.

While existing federal statutes already give law enforcement the authority to prosecute all instances of mortgage fraud, there are steps federal law and policy makers can take to enhance the prevention and aid the prosecution of mortgage fraud. Since law enforcement already is authorized to prosecute all cases of mortgage fraud, the Mortgage Bankers Association (MBA) recommends that any federal legislative action focus on increasing the resources available to law enforcement and facilitating the coordination of federal and state law enforcement. MBA recommends the following:

fraud and would periodically report to Congress regarding its efforts and progress. By developing a centralized body of expertise, federal capabilities and a continual focus will be assured. It could be argued that the lack of such a focus until recently has let mortgage fraud become a path to profit for fraudsters. Mortgage fraud has the same or greater potential to inflict financial harm as a bank robbery, but the more hidden nature of the crime makes its perpetration easier, its detection harder, and its prosecution more difficult and apparently less appealing to some law enforcement personnel. A growing awareness of the harm done by mortgage fraud to lenders, consumers and alike, and potentially to the national financial markets has raised awareness of the impact of this type of crime. However, institutionally recognizing the seriousness of this problem by creating an Office of Mortgage Fraud Enforcement within the Department of Justice would be a logical next step in protecting against this widespread and growing abuse.

  • Federal law could provide for the creation and funding of Intergovernmental Mortgage Fraud Task Forces, enhancing communication between the proposed new Office of Mortgage Fraud Enforcement at DOJ and State Attorneys General and prosecutors for purposes of coordinating the detection and prosecution of mortgage fraud.

Federal law could create and fund a federal Office of Mortgage Fraud Enforcement with prosecutors and investigators with experience with mortgage fraud and the mortgage lending industry. This Office would have the experience necessary to effectively target mortgage


Coopers & Lyrand v. Livesay, 437 U.S. 463, 476 (1978); see also Newton v. Merrill Lynch, 259 F.3d 154, 164 (3d Cir. 2001) (noting that “class certication places inordinate or hydraulic pressure on defendants to settle”); In re Rhone-Poulenc Rore , Inc., 51 F.3d 1293, 1299 (7th Cir. 1995) (noting that class certication may require defendants to “stake their companies on [the] outcome of a single jury trial”); see also Janet Cooper Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 STAN. L. REV. 497, 499 (1991) (“[A] signicant and identiable class of settlements is in reality neither voluntary nor accurate. These settlements are not voluntary in that trial is not regarded by the parties as a practically available alternative for resolving the dispute, and they are not accurate in that the strength of the case on the merits has little or nothing to do with determining the amount of the settlement.”).

  • As part of this intergovernmental initiative, federal law could create an intergovernmental data sharing mechanism through which DOJ and the states could share information regarding mortgage fraud activities and investigations. Provision could be made for mortgage lenders to access certain parts of this database to assist in preventing instances of mortgage fraud. Mortgage lenders and other participants in the mortgage process could contribute data to such a database. The database would help to prevent serial offenders from moving from one community to another using the same fraudulent scheme to bilk lenders.


Mortgage Bankers Association

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