Monday, February 23, 2009

CRIME: The Ones That Got Away

Every so often I'm faced with conflicting loyalties. One belief is that I think that there are way too many criminal laws on the books, many counter-productive and overreaching, but some are not. As a taxpayer and simply not just a defense lawyer, there is one law in particular that our local law enforcement institutions have just plain ignored. That is, one of which involves the greatest crime sprees in our history. The culprits? Predatory borrowers of mortgage loans who gamed the system and picked our pockets.

Take for example this New York Times tidbit some time ago:
There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem. As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default.

Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers. Too often, mortgage originators and middlemen looked the other way rather than slowing down the process or insisting on adequate documentation of income and assets. As long as housing prices kept rising, it didn’t seem to matter. In other words, many of the people now losing their homes committed fraud. And when a mortgage goes into default in its first year, the chance is high that there was fraud in the initial application, especially because unemployment in general has been low during the last two years.

Prominently featured in the Texas Penal Code is the following. I have highlighted some of the relevant portions:


(a) For purposes of this section, "credit" includes:

(7) a mortgage loan

(b) A person commits an offense if he intentionally or knowingly makes a materially false or misleading written statement to obtain property or credit, including a mortgage loan.

(c) An offense under this section is:

(6) a felony of the second degree if the value of the property or the amount of credit is $100,000 or more but less than $200,000;
(7) a felony of the first degree if the value of the property or the amount of credit is $200,000 or more.

(d) The following agencies shall assist a prosecuting attorney of the United States or of a county or judicial district of this state, a county or state law enforcement agency of this state, or a federal law enforcement agency in the investigation of an offense under this section involving a mortgage loan:
(1) the office of the attorney general;
(2) the Department of Public Safety;
(3) the Texas Department of Insurance;
(4) the Office of Consumer Credit Commissioner;
(5) the Texas Department of Banking;
(6) the credit union department;
(7) the Department of Savings and Mortgage Lending;
(8) the Texas Real Estate Commission; and
(9) the Texas Appraiser Licensing and Certification Board.

(e) With the consent of the appropriate local county or district attorney, the attorney general has concurrent jurisdiction with that consenting local prosecutor to prosecute an offense under this section that involves a mortgage loan.

This statute is the favored statute among local prosecutors for prosecuting those who merely pawn stolen items in a pawn shop. But, I'm hard-pressed to find any evidence that this statute is being utilized to track down those who lit the fuse to our current economic woes. And why is that? Is it resources? Time? Lack of know-how? Lack of interest? Lack of courage?

I think its about time our local District Attorneys answered some questions as to why the perpetrators of the greatest scam in our lifetime escaped. Meanwhile, the rest of us have to deal with the havoc these thieves have wrought.


Anonymous said...


ATX Guy said...

Wouldn't this statute also include overstating income on credit card applications?

Let's say someone applies for a credit card, and states they make $100k, but really only make $90k and receives a $25k credit line. Under this statute, that would be a felony.

I agree that the borrowers that perpetuated this national fraud deserve consequences, but does this statute open up a can of worms? If you go after the mortgage borrowers that made false statements, what about the guy that fudged his income or checked the wrong box on employment status? Do you only go after those that default or do you go after everyone?

Not trying to disagree, but just interested in your commentary.