In further proof that attorneys general are abandoning the 50 state attorneys general investigation, California AG Kamala Harris announced that she is establishing a 25 person mortgage fraud task to look into abuses across the spectrum, from the individual borrower level to practices, such as questionable transfers to trusts when the securitizations were formed, that hurt investors.
Note that the defection of a second Democrat (Harris follows New York’s AG Eric Schneiderman in creating her own effort) from the AG investigation is particularly significant. A number of Republicans joined at the 11th hour and were never on board with the premise of talks, so their defection is expected. By contrast, the AGs from solidly Democratic states were expected to stay the course. The fact that the AGs from two major states have effectively left the talks confirm what we have said all along: that the negotiations were not serious precisely because no investigations had been conducted.
We applaud this step forward by Harris, since it shows at least some public servants are taking mortgage abuses seriously. From the Los Angeles Times (hat tip reader Denotis):
The team of 17 lawyers and eight special agents from the state Department of Justice will pursue three major areas, Harris said in an interview:
•Corporate fraud, including instances in which bundled mortgages were sold as securities to the state or its pension funds under false pretenses. Harris said her office plans to prosecute some cases under California’s False Claims Act, which she described as “one of those very powerful tools that California uniquely has … to pursue, in essence, what are false claims that are submitted to the state.”
•Scams, including instances in which consultants, lawyers and others took fees from people in foreclosure, saying they would help the homeowners get loan modifications or other remedies, but delivered nothing.
•Fraudulent lending practices, including deceptive marketing, failure to fully disclose loan terms and qualifying people for loans who couldn’t afford the terms…
“We are looking at a situation of up to $640 billion in wealth having been lost because of this wave of foreclosures that has hit the state,” Harris said, referring to the decline in homeowner equity. “There is a direct connection” between mortgage fraud “and the issue that we are challenged with in terms of our state budget crisis.”…
Harris said her initiative was distinct from the multistate investigation because it would go after all aspects of the mortgage-lending business…
Harris said that although successful prosecutions of major players in the mortgage meltdown have been difficult, the severity of the crisis called for a tough-minded approach to mortgage fraud, one that could target executives of major financial institutions.
“If the evidence leads us there, no case will be too big or too small to pursue,” Harris said. “There remain millions of people affected by the mortgage crisis.”…
“The burden of proof in a criminal case is very high,” Los Angeles defense attorney Jan Handzlik said. “It would be necessary for the AG to prove beyond a reasonable doubt that the mortgage executives had knowledge of the fraud and acted with a criminal intent.”….
William K. Black, a University of Missouri-Kansas City law professor and an aggressive regulator of the savings and loan industry after its crisis in the 1980s, said the state prosecutors could be successful if they carefully chose their targets.
Black asserted that the federal government has the means to pursue these cases but hasn’t shown the will.
“The success rate in the savings and loan cases, despite the fact that they were more complex … was 90%, and this was against the best criminal defense attorneys in America,” Black said.