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Thus, in addition to the mail and wire fraud statutes and the law prohibiting transportation of stolen goods — which apply to all mortgage fraud — a large number of federal statutes also would apply to mortgage fraud in a variety of contexts.

New federal laws prohibiting mortgage fraud could have unforeseen consequences.

Enacting a new federal law — especially a federal law creating criminal penalties — carries with it the potential for unforeseen and unintended consequences. Unforeseen scenarios often arise to test the meaning of even the most carefully crafted statutes. The interpretation of a new statute may be influenced in unforeseen ways by other existing statutes (or vice versa). In the case of mortgage fraud, where well-established and well- understood federal law already provides law enforcement with the authority it needs to prosecute cases of mortgage fraud, MBA suggests that the risk of unintended consequences weighs heavily against enacting a new statute — particularly since federal law enforcement does not need additional authority to prosecute and punish mortgage fraud.

The meaning and reach of new sTaTuTes ofTen is known only afTer They are applied and inTerpreTed by The courTs.

Mortgage fraud can be perpetrated in numerous ways — including ways that have not yet been discovered or considered. Unforeseen factual scenarios can challenge terms that the drafters considered clear. This is particularly true in the case of criminal statutes, where a violator is exposed to large fines and even imprisonment. In one illustrative example among many, the United States Supreme Court had to consider the meaning of the word “carries.” While few would consider “carries” a potentially ambiguous term, a latent ambiguity was brought to light upon application of the statute.32


Federal law imposes a mandatory prison term for any person who, in connection with a drug trafcking offense, “carries” a rearm. One of the defendants in Muscarello v. United States, 524 U.S. 125 (1998), was driving a car containing illegal drugs. In the trunk, in a closed bag, was a gun. The defendant argued that he could not be considered to carry a rearm that was not within his reach and to which he did not have ready access. The Supreme Court, in a sharply divided decision, held that “carries” is not limited to carrying a rearm on one’s person, but includes conveying it in a locked glove compartment or the trunk of a car.

In contrast to any new statute, the existing laws prohibiting mortgage fraud have been on the books for many years — and, in some cases, decades. The meaning of these laws has been refined and their reach clarified through many applications and judicial interpretations. Consequently, prosecutors can bring charges under these tried and tested laws with greater confidence that the law applies to any given case — and with greater confidence that the application of that law will not lead to counterproductive appeals. It is probably for these reasons the Department of Justice has not asked for additional authority to combat mortgage fraud.

a new sTaTuTe could have unwanTed and/or uninTended consequences.

Because of the inherent difficulty in knowing how a new statute will be interpreted or applied in every context, new statutes can have unwanted or unintended consequences. Terms may not be as broad or expansive as thought, and may result in unintended loopholes or gaps in coverage. For example, one pending mortgage fraud bill, S. 1222, would allow only a “mortgage professional” to be charged with the proposed federal crime of mortgage fraud. However, MBA’s members are aware of many cases of individuals who have engaged in mortgage fraud — in particular, in the “fraud for housing” context — whether independently or in collusion with others, but who are not “mortgage professionals” as that term is defined in the bill. Even carefully crafted legislation is susceptible to such unintended gaps in coverage.

On the other hand, if terms, such as “mortgage fraud” are defined too broadly, they may encompass activities that are not “mortgage fraud” or fraudulent in any way. As a result, such activities may be subject to penalties that are not intended and are disproportionate to any harm caused. Penalties for mortgage fraud can be severe. For example, proposed S. 1222 would impose on cases of “mortgage fraud” a fine of up to $5 million and imprisonment of up to 35 years. While such criminal penalties may be appropriate in cases of true mortgage fraud, as that term is understood by law enforcement officials and the industry, such penalties may be inappropriate for other activities. For example, S. 1222 would define “mortgage fraud” to include obtaining money, including fees, under “false” pretenses — a term that is undefined in the bill. It is possible that a court could interpret this term

Mortgage Bankers Association

© Mortgage Bankers Association 2007. All Right Reserved.


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