Mortgage Bankers Association • Mortgage Fraud
Some legislative proposals have sought to create a federal private right of action3 for mortgage fraud. Such proposals, however, have the potential to harm mortgage lenders — the very entities that are the primary victims of mortgage fraud. While a statute must be phrased broadly to allow law enforcement officials to combat all forms of mortgage fraud that may arise, broadly phrased statutes could easily be abused in the hands of private litigants who may not exercise the same restraint as law enforcement personnel in pursuing remedies. Private litigants have no long-term stake in protecting fraud statutes from being unduly narrowed by judicial interpretation to avoid overreaching.
Rather than drafting new legislation, the focus should be on providing the structure and resources needed by law enforcement officials to combat mortgage fraud. While law enforcement has all the legal tools it needs at its disposal, it requires more resources and a more efficient framework to use those tools effectively. This can be accomplished by:
Providing more funding for mortgage fraud prevention and prosecution efforts
Assuring that investigative and prosecutorial resources are committed to mortgage fraud prevention
Placing responsibility for enforcement in a dedicated office within the Department of Justice
Providing for intergovernmental cooperation in prosecuting mortgage fraud
As with federal law, state law already authorizes state law enforcement officials to prosecute mortgage fraud. Rather than creating new statutes, legislative efforts should concentrate on providing the focus and resources needed by state and local law enforcement officials to combat mortgage fraud. Moreover, state law already provides victims of mortgage fraud with means of redress. Just as new federal mortgage fraud legislation is unnecessary, the same is the case with respect to new state laws.
Ultimately, any solution to mortgage fraud should remain focused on true mortgage fraud. The differences between mortgage fraud and predatory lending make efforts to address both problems simultaneously ill-advised. Law and policy makers should take care to ensure that proposed solutions to each of these problems are not conflated or confusing.
“Private right of action” refers to the ability of individuals to seek civil damages when federal or state law has been violated.
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