AUDIT OF THE DEPARTMENT OF 

JUSTICE’S EFFORTS TO ADDRESS
 

MORTGAGE FRAUD
 

U.S. Department of Justice
 

Office of the Inspector General
 

Audit Division
 

Audit Report 14-12
 

March 2014
 
 

 

 

 

 

 

 

 

 

AUDIT OF THE DEPARTMENT OF JUSTICE’S
 

EFFORTS TO ADDRESS MORTGAGE FRAUD
 

EXECUTIVE SUMMARY
 

The Department of Justice (DOJ) and its components, particularly the FBI, 

United States Attorneys’ Offices (USAO), Criminal Division, and Civil Division, along 

with the DOJ-led interagency Financial Fraud Enforcement Task Force (FFETF), play 

an important role in combating mortgage fraud through civil litigation and criminal 

investigation and prosecution. The objective of this audit was to assess DOJ’s 

approach and enforcement efforts in addressing mortgage fraud generally between 

fiscal years (FY) 2009 and 2011. 

DOJ and its components have repeatedly stated publicly that mortgage fraud 

is a high priority and during this audit we found some examples of DOJ-led efforts 

that supported those claims. Two such examples are the Criminal Division’s 

leadership of its mortgage fraud working group and the FBI and USAOs’ 

participation on more than 90 local task forces and working groups. However, we 

also determined during this audit that DOJ did not uniformly ensure that mortgage 

fraud was prioritized at a level commensurate with its public statements. For 

example, the Federal Bureau of Investigation (FBI) Criminal Investigative Division 

ranked mortgage fraud as the lowest ranked criminal threat in its lowest crime 

category.1 Additionally, we found mortgage fraud to be a low priority, or not listed 

as a priority, for the FBI Field Offices we visited, including Baltimore, Los Angeles, 

Miami, and New York. We also found that while the FBI received $196 million in 

appropriated funding to investigate mortgage fraud activities from fiscal years 2009 

through 2011, in FY 2011 the number of FBI agents investigating mortgage fraud 

as well as the number of pending investigations decreased. 

We also attempted to review the scope of DOJ’s prosecutorial efforts to 

address mortgage fraud by reviewing case data. However, we found that the 

Executive Office for United States Attorneys’ (EOUSA) case management system 

did not allow for a complete or reliable assessment of DOJ’s mortgage fraud efforts 

because many Assistant United States Attorneys (AUSA) informed us about 

underreporting and misclassification of mortgage fraud cases. They further 

explained that mortgage fraud cases are often coupled with other criminal activities 

and that, when initiating a case file, an AUSA may fail to include the mortgage 

fraud code if it is not the leading charge in a case. In addition, EOUSA is unable to 

track the complexity of criminal cases or whether the individual defendants 

prosecuted were high level officials. Capturing such information would allow DOJ to 

better understand its overall effort and to better evaluate its performance in 

targeting high-profile offenders. 

1 According to FBI Criminal Investigative Division officials, certain complex financial crimes 

are not assigned a priority ranking. For example, the FBI informed us that crimes such as bankruptcy 

fraud, credit card fraud, mass marketing fraud, insurance fraud, money laundering, and other mail 

and wire fraud crimes were not ranked at all. 

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In addition to criminal prosecutions, DOJ’s fight against mortgage fraud also 

exists in its civil enforcement efforts. For example, in July 2011, Project High 

Default Lender was initiated by the U.S. Department of Housing and Urban 

Development, Office of the Inspector General (HUD-OIG) in conjunction with the 

Civil Division. The HUD-OIG provided 84 USAOs with lender default data for 

potential civil investigations and approximately 40 civil investigations were opened 

as a result of this effort. However, EOUSA was unable to provide any data related 

to DOJ’s civil enforcement efforts because the EOUSA case management system is 

unable to specifically identify civil mortgage fraud cases. We believe that DOJ 

should capture such data in order to better understand its overall effort to combat 

mortgage fraud and to provide a complete and accurate picture of the DOJ civil 

enforcement effort to ensure that initiatives like Project High Default Lender are 

properly accounted for. 

The Department’s inability to accurately collect data about its mortgage fraud 

efforts was starkly demonstrated when we sought to review the Distressed 

Homeowner Initiative. On October 9, 2012, the FFETF held a press conference to 

publicize the results of the initiative.2 During this press conference, the Attorney 

General announced that the initiative resulted in 530 criminal defendants being 

charged, including 172 executives, in 285 criminal indictments or informations filed 

in federal courts throughout the United States during the previous 12 months. The 

Attorney General also announced that 110 federal civil cases were filed against over 

150 defendants for losses totaling at least $37 million, and involving more than 

15,000 victims. According to statements made at the press conference, these 

cases involved more than 73,000 homeowner victims and total losses estimated at 

more than $1 billion. 

Shortly after this press conference, we requested documentation that 

supported the statistics presented. In November 2012, in response to our request, 

DOJ officials informed us that shortly after the press conference concluded they 

became concerned with the accuracy of the statistics. Based on a review of the 

case list that was the basis for the figures, the then-Executive Director of the FFETF 

told us that numerous significant errors and inaccuracies existed with the 

information. For example, multiple cases were included in the reported statistics 

that were not distressed homeowner-related fraud. Also, a significant number of 

the included cases were brought prior to the FY 2012 timeframe. 

Over the following months, we repeatedly asked the Department about its 

efforts to correct the statistics. We learned that, on August 9, 2013, the FBI 

provided a memorandum to the FFETF concluding that several of the statistics 

announced during the October 2012 press conference were substantially 

overstated. Specifically, the number of criminal defendants charged as part of the 

initiative was 107, not 530 as originally reported; and the total estimated losses 

associated with true Distressed Homeowners cases were $95 million, 91 percent 

2 According to the Distressed Homeowner Initiative press release issued on October 9, 2012, 

the initiative was “the first ever nationwide effort to target fraud schemes that prey upon suffering 

homeowners.” 

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less than the $1 billion reported at the October 2012 press conference. The 

Department’s October 9, 2012, press release and the press conference transcript of 

the Attorney General’s remarks, both available on the Department’s website, now 

include disclosures citing the inaccuracy of the originally reported statistics, and the 

language in each has revised wording and statistics based on the FBI’s August 2013 

memorandum. 

Despite being aware of the serious flaws in these statistics since at least 

November 2012, we found that the Department continued to cite them in mortgage 

fraud press releases that it issued in the ensuing 10 months. We believe the 

Department should not have continued to issue press releases with these statistics 

once it became aware of the serious flaws. 

We also found that neither DOJ nor the FFETF had an established 

methodology for obtaining and verifying the criminal mortgage fraud statistics 

announced during the press conference on October 9, 2012. We found this process 

to be disturbing, and it led the Department to report inaccurate information to the 

public. 

According to DOJ officials, the data collected and publicly announced for an 

earlier FFETF mortgage fraud initiative – Operation Stolen Dreams – also may have 

contained similar errors.3 According to these officials, a similar collection 

methodology was employed for the statistics publicly reported by the Department 

for this initiative. 

This audit report makes 7 recommendations to help DOJ improve its 

understanding, coordination, and reporting of its efforts to address mortgage fraud. 

3 Operation Stolen Dreams started on March 1, 2010, and was announced as “the largest 

collective enforcement effort ever brought to bear in confronting mortgage fraud.” 

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AUDIT OF THE DEPARTMENT OF JUSTICE’S
 

EFFORTS TO ADDRESS MORTGAGE FRAUD
 

TABLE OF CONTENTS
 

OIG Audit Approach ....................................................................................2
 

Enactment of the Fraud Enforcement and Recovery Act..............................3
 

The Financial Fraud Enforcement Task Force ..............................................4
 

DOJ Approach to Mortgage Fraud................................................................5
 

DOJ Criminal Enforcement Effort.................................................................6
 

FBI Investigative Effort...................................................................................7
 

EOUSA and USAO Prosecutorial Effort............................................................. 13
 

DOJ Civil Enforcement Effort .....................................................................20
 

Civil Enforcement Data ................................................................................. 21
 

Civil Enforcement Coordination and Resource Limitations .................................. 22
 

FFETF and DOJ Mortgage Fraud Prosecution Initiatives ............................23
 

Distressed Homeowner Initiative.................................................................... 23
 

Operation Stolen Dreams .............................................................................. 28
 

Conclusion ................................................................................................29
 

Recommendations.....................................................................................29
 

STATEMENT ON INTERNAL CONTROLS ......................................................31
 

STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS ................32
 

APPENDIX I - OBJECTIVE, SCOPE, AND METHODOLOGY............................33
 

APPENDIX II - EXECUTIVE ORDER 13519 FINANCIAL FRAUD
 

ENFORCEMENT TASK FORCE.................................................................35
 

APPENDIX III - DOJ COMPONENTS TASKED WITH COMBATING
 

MORTGAGE FRAUD ...............................................................................39
 

APPENDIX IV - DISTRESSED HOMEOWNER INITIATIVE PRESS
 

CONFERENCE........................................................................................40
 

APPENDIX V - FEDERAL BUREAU OF INVESTIGATION MEMORANDUM.......43
 

APPENDIX VI - DEPARTMENT OF JUSTICE RESPONSE TO THE DRAFT
 

AUDIT REPORT.....................................................................................44
 

APPENDIX VII - OFFICE OF THE INSPECTOR GENERAL ANALYSIS AND
 

SUMMARY OF ACTIONS NECESSARY TO CLOSE THE REPORT ................50
 
 

 

 

 

 

 

 

 

 

 

 

AUDIT OF THE DEPARTMENT OF JUSTICE’S
 

EFFORTS TO ADDRESS MORTGAGE FRAUD
 

The Department of Justice (DOJ) and its components, particularly the Federal 

Bureau of Investigation (FBI), United States Attorneys’ Offices (USAO), Criminal 

Division, and Civil Division, along with many other federal, state, and local law 

enforcement agencies, play a lead role in combating mortgage fraud by using 

criminal and civil enforcement tools against individuals and entities that commit 

mortgage fraud.4 

According to the co-chair of the Financial Fraud Enforcement Task Force 

(FFETF) Mortgage Fraud Working Group (MFWG), in the early 2000s, a booming 

real estate market, combined with a relaxation of underwriting standards and 

practices, created an environment for mortgage fraud to flourish. During this time, 

according to the co-chair of the MFWG, a host of corrupt borrowers and industry 

insiders including – real estate agents, property appraisers, attorneys, title 

insurance agents, and mortgage brokers – capitalized on opportunities to victimize 

financial institutions. 

An article written by the co-chair of the MFWG stated that when the housing 

market began to decline in 2007, real estate values began to fall and mortgage 

lenders began experiencing large losses due to fraud, reducing their ability to fund 

new mortgage loans. Foreclosures left houses empty and ill-kept, while their 

artificially inflated prices kept new buyers from buying them. Neighborhoods, which 

had seen their real estate tax bills increase steeply due to the inflated sales prices 

of the fraudulently mortgaged homes, found themselves surrounded by abandoned, 

decaying houses that invited crime. 

The nature and seriousness of mortgage fraud varies from state to state and 

city to city, with some areas affected more significantly than others. According to 

the FBI, the overall levels of mortgage fraud activity corresponds closely with 

mortgage loan originations, unemployment, mortgage loan delinquencies, loan 

defaults, foreclosures, negative home equity values, loan modifications, housing 

prices and inventory, real estate sales, housing construction, and bank failures. 

According to the FFETF, common mortgage fraud schemes typically involve a 

borrower or industry insider who misstates, misrepresents, or omits information on 

a mortgage application that causes a lender to fund, purchase, or insure a 

mortgage loan it otherwise would not have had it possessed the correct 

information. This type of fraud is known as loan origination fraud and is considered 

by the FBI to be the most common type of mortgage fraud scheme. 

Loan origination fraud is divided into two categories: fraud for housing and 

fraud for profit. Fraud for housing entails misrepresentations by the applicant for 

4 See Appendix III for the complete list of DOJ components that have a role in addressing 

mortgage fraud. 

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the purpose of purchasing a property for a primary residence. This scheme usually 

involves a single loan. Although applicants may embellish income and conceal 

debt, the intent of the borrower usually is to repay the loan. Conversely, fraud for 

profit often involves multiple loans and elaborate schemes perpetrated to gain illicit 

proceeds from property sales. Intentional misrepresentations concerning appraisals 

and loan documents are common in fraud for profit schemes, and participants are 

frequently paid for their participation. 

According to the FBI, loan origination fraud was the most prevalent type of 

scheme due to the ease in obtaining a loan. However, tightened lending practices 

that followed the collapse of the housing market led mortgage fraud crime to evolve 

away from loan origination fraud in many areas of the country. Now, we were told 

by the FBI, there are many different schemes that victimize consumers, such as 

foreclosure rescue scams, loan modification schemes, and short-sale frauds. The 

FBI reported that for the first time in many years, distressed homeowner frauds 

have displaced loan origination fraud as the number one mortgage fraud threat in 

many areas of the country. 

Distressed homeowner scams target vulnerable homeowners and include 

schemes such as foreclosure rescue and loan modification. In a foreclosure rescue 

scheme, perpetrators convince homeowners that they can save their homes from 

foreclosure through deed transfers and the payment of up-front fees. Loan 

modification schemes are a type of foreclosure rescue scheme in which advanced 

fees are paid by homeowners. Perpetrators solicit homeowners offering to help 

them stop the foreclosure process on their homes. Perpetrators require an up-front 

fee from homeowners to participate in the loan modification program. Often, after 

collecting these fees, these companies do little or nothing to help the homeowners. 

Foreclosure schemes are often used in combination with other fraudulent schemes, 

such as those involving short sales and property flipping. 

Some observers use the term “mortgage fraud” to include mortgage-backed 

securities fraud, which involves wrongdoing related to the packaging, selling, and 

valuing of residential and commercial mortgage-backed securities. However, the 

FBI considers this type of misconduct to be a form of securities fraud and not 

mortgage fraud; therefore, we did not include as part of the scope of this audit. 

OIG Audit Approach 

The objective of this audit was to assess DOJ’s approach and enforcement 

efforts in addressing mortgage fraud. To accomplish our objective we interviewed 

officials from several DOJ components responsible for addressing mortgage fraud, 

including the Criminal Division, Civil Division, Executive Office for United States 

Attorneys (EOUSA), five USAOs, and officials at FBI headquarters and four FBI field 

offices. To gain a broader perspective on mortgage fraud issues and DOJ’s efforts 

to combat mortgage fraud, we also interviewed representatives from non-DOJ 

agencies with responsibilities for addressing mortgage fraud. These non-DOJ 

agencies included officials from the Department of Housing and Urban Development 

Office of the Inspector General, the Federal Housing and Finance Agency Office of 

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the Inspector General, and the Department of the Treasury’s Financial Crimes 

Enforcement Network (FinCEN). In addition, we reviewed statistics provided by the 

FBI and EOUSA related to mortgage fraud investigations and prosecutions as well 

as manpower resources dedicated to mortgage fraud. 

In addressing our audit objective, this report provides an overview of the 

federal government’s recent response to mortgage fraud. Following that, we assess 

DOJ’s role and overall approach to mortgage fraud and offer recommendations for 

improving reporting of its efforts to combat this crime. We also provide analyses of 

the investigative, prosecutorial, and civil enforcement efforts of the various DOJ 

components involved in addressing mortgage fraud and make recommendations to 

strengthen those mortgage fraud efforts. 

Enactment of the Fraud Enforcement and Recovery Act 

On May 20, 2009, the President signed the Fraud Enforcement and Recovery 

Act of 2009 (FERA).5 FERA was intended to enhance criminal and civil enforcement 

of federal fraud laws, especially mortgage fraud, and provide agents and 

prosecutors with the necessary resources to address these crimes. Two provisions 

of FERA involving mortgage fraud enforcement included amendments and revisions 

to criminal and civil fraud statutes. First, FERA expanded the definition of a 

financial institution to include mortgage lending businesses not directly regulated or 

insured by the federal government. This change enlarged the scope of federal 

prosecutions in the area of mortgage fraud by making it a federal crime to defraud 

these types of institutions. Second, FERA revised part of the False Claims Act, 

which is one of the government’s civil tools for redressing fraud against American 

taxpayers. The amendment expands liability under the False Claims Act by more 

broadly defining “a false record or statement material to a false or fraudulent claim” 

to include “any request or demand” related to a government program and which 

will be paid from funds supplied by the government. 

FERA also authorized DOJ to receive an additional $165 million for fiscal 

years 2010 and 2011 in order to pursue criminal, civil, and administrative 

investigations and prosecutions of financial frauds, including mortgage fraud. 

However, outside of the FBI, FERA did not specifically require that a portion of 

these funds be used for mortgage fraud. Additionally, the actual amount of funds 

appropriated by Congress to the DOJ following the adoption of FERA were 

significantly less than the amounts authorized by FERA, as shown below. 

5 Pub.L. 111-21, S. 386, 123 Stat. 1617 (2009). 

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Fraud Enforcement and Recovery Act Funds 

Authorized and Appropriated 

(in millions) 

Component Authorized 

FY 2010 

Appropriated 

FY 2010 

Authorized 

FY 2011 

Appropriated 

FY 2011 

FBI $75M $25.5M $65M $20.2M 

USAOs $50M $7.5M $50M $0 

Criminal 

Division 

$20M $1.8M $20M $0 

Civil 

Division 

$15M $0 $15M $0 

Source: DOJ 

The Financial Fraud Enforcement Task Force 

On November 17, 2009, the President issued an Executive Order creating the 

Financial Fraud Enforcement Task Force (FFETF). The FFETF is an interagency task 

force led by DOJ and chaired by the Attorney General. The membership of the 

FFETF consists of more than 25 federal agencies, regulators, and inspectors 

general, as well as state and local partners.6 An Executive Director of the FFETF 

was assigned from DOJ. 

According to the Executive Order, the President created the FFETF to 

strengthen the efforts of the DOJ to investigate and prosecute significant financial 

crimes, recover the proceeds of those crimes, and ensure just and effective 

punishment. One of the missions of the FFETF is to enhance cooperation between 

federal, state, local, tribal, and territorial authorities responsible for the 

investigation and prosecution of significant financial crimes. According to its First 

Year Annual Report, the FFETF also was charged with promoting training, data 

collection, and information sharing. In support of this mission, the FFETF 

established three committees that address enforcement efforts, training and 

information sharing, and victims' rights. The Enforcement Committee created five 

working groups to focus on certain priority areas, bringing together subject matter 

experts from agencies at an operational level to work together to make a 

significant, coordinated, and focused push of enforcement in these areas.7 

6 See Appendix II for Executive Order 13519 on the Financial Fraud Enforcement Task Force 

(E.O. 13519) which includes Task Force membership. 

7 The five original working groups of the FFETF were: (1) the Mortgage Fraud Working Group, 

(2) the Recovery Act, Procurement, and Grant Fraud Working Group, (3) the Rescue Fraud Working 

Group, (4) the Securities and Commodities Fraud Working Group, and (5) the Non-Discrimination 

Working Group. The number of working groups was increased to eight in January 2012. The following 

working groups were added to the FFETF at that time: (6) the Oil and Gas Price Working Group, 

(7) the Consumer Protection Working Group, and (8) the Residential Mortgage-Backed Securities 

Working Group. 

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The FFETF’s Mortgage Fraud Working Group (MFWG) was created as one of 

the five working groups because mortgage fraud was considered a priority area for 

the President and the Department. The MFWG is comprised of high-level federal 

and state executives and is co-chaired by the Assistant Attorney General of DOJ’s 

Civil Division; a U.S. Attorney from the Attorney General’s Advisory Committee; the 

Chief of the FBI’s Financial Crimes Section; the Inspector General of the 

Department of Housing and Urban Development; and a representative from the 

National Association of Attorneys General. According to its action plan, the primary 

purpose of the MFWG is to increase enforcement in the area of mortgage fraud, and 

to do so through greater coordination among law enforcement agencies, the 

development and sharing of enforcement strategies, and training. The action plan 

states that the MFWG has worked to expand and invigorate the 90 existing local 

multi-agency mortgage fraud task forces and working groups located in USAOs 

around the country, to increase both criminal and civil enforcement actions by 

federal agencies in the near term, and to increase training and other resources 

available to federal, state and local enforcement agencies. In 2012, the FFETF 

established a mortgage fraud scorecard to track the Department’s mortgage fraud 

efforts, including: the number of law enforcement training events conducted; 

outreach to professional organizations; community outreach; and victim assistance. 

DOJ Approach to Mortgage Fraud 

Beyond its leadership of the FFETF and the MFWG, the DOJ plays an 

important role in combating mortgage fraud through criminal investigations and 

prosecutions of individuals and entities that commit this type of fraud. DOJ also 

has significant civil enforcement tools at its disposal that can help deter such 

fraudulent activity. 

The DOJ Criminal Division’s Fraud Section, along with the USAOs, 

investigates and prosecutes federal fraud offenses, including mortgage fraud. In 

addition to its litigation responsibilities, the Criminal Division’s Fraud Section helps 

implement criminal enforcement policy and provides advice, assistance, and 

manpower to the USAOs. In FY 2010, the Criminal Division’s Fraud Section 

received funding to fight financial institutional fraud, which includes mortgage 

fraud. As shown in the following chart, it did not receive any additional funding or 

support for financial institutional fraud activities in FYs 2009 or 2011. 

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Criminal Division Financial Fraud Funding & Resources 

by Fiscal Year 

FY 2009 2010 2011 Total 

Funding 

Received 

(in millions) 

$0 $1.8 $0 $1.8 

New Attorney 

Positions 

0 3 0 3 

New NonAttorney 

Positions 

0 2 0 2 

Source: DOJ Criminal Division 

In 2007, prior to the creation of the FFETF and the MFWG, the Criminal 

Division created and the Fraud Section chaired a mortgage fraud working group as 

a derivative of their Interagency Bank Fraud Enforcement Working Group. The 

Criminal Division mortgage fraud working group continued in existence after the 

creation of the FFETF’s MFWG. 

The Criminal Division working group meetings are regularly attended by 

representatives from several DOJ components, including the Civil Division, EOUSA, 

select USAOs, and the FBI. We were told that representatives from other federal 

agencies and state bank regulators also attend the group’s meetings. According to 

the Chair of the Criminal Division mortgage fraud working group, the working group 

explores mortgage fraud issues, considers trends, and enables members to 

network. The Criminal Division’s Mortgage Fraud Working Group similarly does not 

have any performance metrics to measure its successes or progress towards 

meeting its stated goals and objectives. 

Because of the apparent similarities between the MFWG and the Criminal 

Division’s mortgage fraud working group, we asked about a possible duplication of 

mortgage fraud efforts. According to the Chair of Criminal Division mortgage fraud 

working group, the Criminal Division working group is attended mainly by mid-level 

DOJ component managers while the MFWG is attended primarily by senior and 

executive level management. The FFETF Executive Director concurred with this 

assessment and explained that the FFETF MFWG has the ability to affect change at 

a national level and is in a better position to do outreach, provide training efforts, 

and conduct national summits. The Criminal Division working group is mainly used 

to discuss trends and the status of cases, and to network at the operational level. 

According to the Chair of the Criminal Division mortgage fraud working group, the 

Criminal Division working group and the MFWG are complementary, although at 

times there are parallels in their respective efforts to address mortgage fraud. 

DOJ Criminal Enforcement Effort 

The FBI is the principal investigative arm of DOJ and has the authority and 

responsibility to investigate mortgage fraud and refer such investigations to the 

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USAOs for prosecution. Outside of the FBI, federal agencies such as the 

Department of Housing and Urban Development Office of the Inspector General, 

U.S. Postal Inspection Service, U.S. Secret Service, and the Federal Housing and 

Finance Agency Office of the Inspector General also investigate mortgage fraud and 

refer cases to the USAOs. 

FBI Investigative Effort 

Primary responsibility for the FBI’s mortgage fraud program resides in the 

Financial Institution Fraud Unit within the Financial Crimes Section of the Criminal 

Investigative Division. The mission of the Financial Institution Fraud Unit is to 

oversee the investigation of financial industry fraud schemes perpetrated by 

individuals and criminal organizations that target financial institutions. As part of 

its responsibilities, the Financial Institution Fraud Unit is designed to coordinate 

efforts between FBI headquarters and its field offices. 

From fiscal years 2009 to 2011, Congress appropriated significant additional 

funding to the FBI for the investigation of mortgage fraud cases and white collar 

crime. This funding was intended to increase the number of agents dedicated to 

mortgage fraud and white collar crime investigations and add to the existing 

mortgage fraud task forces. According to an FBI budget official, the additional 

funding listed in the following table was used exclusively to support mortgage fraud 

investigations; however, the new agent positions may or may not have been used 

exclusively to support mortgage fraud. The FBI official further told us that these 

new agents were allocated to FBI field offices based on the level of mortgage fraud 

activity occurring in each field office’s area of responsibility. The FBI official also 

stated, however, that assignment of FBI casework in the field is driven by threat 

level and therefore FBI agents in the field are typically assigned to work in a 

program area (such as white collar crime) and generally are not directly assigned to 

work specific types of cases; thus, over time, agents’ program area and case types 

may shift as a threat changes. The FBI budget official added that historically, when 

the FBI is appropriated funding for new special agent positions for the field, a ratio 

of support positions (Clerical, Investigative, and Information Technology support) 

are typically funded as well. These ratio support positions, although received 

through a specific enhancement, do not necessarily work solely on certain types of 

cases. Rather, their time may be spent supporting a myriad of FBI programs in the 

field office to which they are assigned. 

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FBI Mortgage Fraud and White Collar Crime 

Funding & Resources by Fiscal Year8 

FY 2009 2010 2011 Total 

Funding 

Received 

(in millions) 

$36.6 $79.7 $79.7 $196.0 

New Agents 25 50 81 156 

New NonAgent 

Positions 

33 93 130 256 

Source: FBI 

We found that, despite public statements by the FFETF and the Department 

about the importance of pursuing financial frauds cases, including mortgage fraud, 

the FBI Criminal Investigative Division ranked Complex Financial Crimes as the 

lowest of the six ranked criminal threats within its area of responsibility, and ranked 

mortgage fraud as the lowest subcategory threat within the Complex Financial 

Crimes category.9 Additionally, we found mortgage fraud to be a low priority, or 

not listed as a priority, for FBI Field Offices in the locations we visited, including 

Baltimore, Los Angeles, Miami, and New York. 

Statistical Data 

FBI records show that the number of mortgage fraud cases opened from 

2009 through 2011 declined in each subsequent year. FBI officials we spoke with 

attributed this decline in part to enhanced underwriting standards among lenders 

that resulted in a reduction in mortgage fraud associated with loan originations. 

We found that FBI data also reflected decreases in FY 2011 for the number of FBI 

special agents dedicated to mortgage fraud and the number of pending FBI 

investigations. However, the statistics we received from the FBI show an increase 

each year in the number of convictions, with figures nearly doubling from 2009 to 

2010, and rising again slightly in FY 2011. 

8 According to the FBI, these amounts reflect a combination of existing funding as well as 

funds that were appropriated specifically to combat mortgage fraud. 

9 The FBI Criminal Investigative Division prioritizes crime threats that are in its area of 

responsibility. In 2011, there were six crime threat categories ranked in the following order: Public 

Corruption, Southwest Border, Civil Rights, Violent Crime, Organized Crime, and Complex Financial 

Crime. Under each category there are several subcategory program areas that were also prioritized. 

Under Complex Financial Crime, which is ranked last, the subcategories are prioritized in the following 

order: Corporate and Securities/Commodities Fraud, Health Care Fraud, and Mortgage Fraud. 

According to the FBI, complex financial crimes such as bankruptcy fraud, credit card fraud, mass 

marketing fraud, insurance fraud, money laundering, and other mail and wire fraud crimes are not 

assigned a priority ranking. 

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FBI Mortgage Fraud Statistics by Fiscal Year 

FY Agents Cases 

Opened 

Pending 

Investigations 

Information/ 

Indictments 

Convictions10 

2009 300 1,771 2,794 873 555 

2010 356 1,174 3,129 1,565 1,087 

2011 325 599 2,691 1,230 1,118 

Source: FBI 

According to various FBI officials, the mortgage fraud problem has evolved 

and is waning. These officials believe that the number of investigations and 

prosecutions will continue to decline in the current and subsequent fiscal years. As 

mentioned earlier, in the early to mid-2000s, loan origination fraud was the most 

common type of mortgage fraud scheme. However, following the decline of the 

housing market tightened lending regulations led to a decrease in loan originations 

and this caused the incidence of loan origination fraud to decline. According to the 

former Deputy Director of the FBI, as lending standards tightened and foreclosures 

rose, criminals began to focus their schemes on vulnerable homeowners facing 

foreclosure. 

The information we obtained during our interviews with field level FBI Special 

Agents was consistent with the data shown above. Although each of the FBI field 

offices we visited had at least one squad, and in most cases multiple squads that 

were tasked with investigating mortgage fraud, several Special Agents assigned to 

these squads stated that mortgage fraud began to evolve as a threat in 2011 and 

has generally diminished as a priority in their offices. According to some Special 

Agents, the emerging foreclosure rescue schemes do not typically have high dollar 

loss amounts like the loan origination scams of previous years, and such cases may 

not meet certain USAO prosecutorial thresholds. We were told that these cases are 

sometimes put into an unaddressed work file by the FBI in order to accumulate 

sufficient fraudulent activity and dollar losses before presenting them to the USAO 

for prosecution.11 The Special Agents we spoke with said that accumulating 

10 In the chart on page 17, we present EOUSA data that shows that EOUSA reported a smaller 

number of mortgage fraud cases with a guilty disposition in each FY for the same time period. We did 

not compare each case counted as a conviction by the FBI with the cases reported by EOUSA as 

having a guilty disposition because each component classifies mortgage fraud cases differently in their 

case management systems. However, we believe the discrepancies in the reporting between these 

Department agencies is evidence that the Department currently does not have an accurate 

understanding of its overall mortgage fraud effort, as we discuss in greater detail later in this report. 

11 The unaddressed work files are a repository for significant mortgage fraud cases that would 

be addressed but for the lack of adequate investigative resources or cases that require additional 

information to open a full investigation. Field office personnel are reminded to conduct reviews of 

unaddressed work files every 90 days to determine if these matters can be addressed as preliminary 

or full investigations utilizing existing resources. 

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sufficient fraudulent activity and dollar losses can be a cumbersome and time 

consuming process. 

In FY 2011, the FBI’s Financial Institution Fraud Unit conducted an analysis 

of trends throughout the FBI field offices specific to the opening and closing of 

mortgage fraud cases. The Financial Institution Fraud Unit analysis identified two 

areas of concern: (1) significant mortgage fraud cases were not being opened 

because of a lack of adequate resources to open them, and (2) significant mortgage 

fraud cases were being closed due to the diversion of the resources which had been 

assigned to address these cases to higher priority matters.12 

According to the Financial Institution Fraud Unit analysis, from FY 2009 

through FY 2011, FBI field offices opened over 3,000 new mortgage fraud cases. 

During this same time frame, the total number of mortgage fraud Suspicious 

Activity Reports (SARs) generated by federally insured financial institutions 

exceeded 231,000.13 We were told that SARs can provide the FBI with tips and 

leads regarding mortgage fraud, but does not necessarily provide sufficient 

information to initiate an investigation. As seen in the following table, per the FBI, 

the number of mortgage fraud SARs increased from 67,190 in FY 2009 to 93,508 in 

FY 2011.14 

Mortgage Fraud Suspicious Activity Reports 

(SARs) Filed by Fiscal Year 

FY SARs Filed 

2009 67,190 

2010 70,533 

2011 93,508 

Source: FBI 

According to the FBI, the Financial Institution Fraud Unit does not equate 

each SAR filing as predication to initiate an investigation. When multiple SARs have 

associations to the same fraud group, they would be combined into one 

12 Under 1 Funded Staff Level (FSL), FBI field offices were asked to reprioritize many of their 

investigations based on current and emerging threats in their area of responsibility. This will 

necessarily result in a reduction of resources being allocated to what are considered lower priority 

threats. As a result, in some instances resources previously devoted to mortgage fraud may be redirected to higher priority investigations. 

13 The purpose of the Suspicious Activity Report (SAR) is to report known or suspected 

violations of law or suspicious activity observed by financial institutions subject to the regulations of 

the Bank Secrecy Act. A SAR is considered a mortgage fraud-related when the financial institution 

filling out the form indicates “mortgage loan fraud” as a characterization of the type of suspicious 

activity. As of April 2013, the electronic version of the SAR includes a section on mortgage fraud. 

14 According to officials at FinCEN, the increase in the number of mortgage fraud SARs does 

not necessarily correlate to an increase in the level of mortgage fraud activity. The FinCEN officials 

said that the increase in mortgage fraud SARs simply could reflect an improvement in the ability of 

financial institutions to identify potential issues related to mortgage fraud that previously existed. 

10
 
 

 

 

 

 

 

 

 

 

investigation. FBI officials stated that the FBI is unable to address every potential 

allegation of mortgage fraud but attempts to work higher level cases which involve 

multiple victims, higher dollar losses or fraud activity, and organized groups 

involved in fraud. Additionally, some SARs may not provide sufficient information 

to open an investigation, or they may relate to an individual home mortgage which 

the FBI would not address. However, the sheer volume of mortgage fraud SARs as 

compared to actual case initiations during this time frame may indicate significant 

mortgage fraud cases were going unaddressed, according to the Financial 

Institution Fraud Unit. 

The Financial Institution Fraud Unit also determined that in FY 2011 a total of 

747 mortgage fraud cases were closed by FBI field offices without prosecution. The 

Financial Institution Fraud Unit conducted a detailed analysis of cases closed during 

this time frame and concluded that the majority of cases closed by the FBI in FY 

2011 were closed with minimal or no investigation conducted. 

We concluded, based on the statistics provided by the FBI along with the 

relatively low ranking that mortgage fraud received on various FBI priority lists that 

mortgage fraud did not receive a priority ranking commensurate with DOJ’s 

statements related to mortgage fraud during the period of our review. We further 

found, based on our discussions with FBI officials that the priority level for 

mortgage fraud investigations within the FBI will likely diminish in the coming 

years. 

FBI Undercover Operations 

Mortgage fraud has traditionally been investigated by the FBI reactively, that 

is after the crime has already been committed. We were told these reactive 

investigations are labor intensive and may involve voluminous document reviews 

and numerous witness interviews. However, reactive investigations are not the 

only tool available to the FBI to investigate mortgage fraud. According to the FBI’s 

Financial Institution Fraud Policy Implementation Guide, some mortgage fraud 

investigations can be more effective with the use of proactive undercover 

operations (UCO), which include the use of Group I and Group II UCOs.15 

According to FBI documents we reviewed, proactive investigative measures not only 

result in the collection of valuable evidence and intelligence, they provide an 

opportunity to apprehend criminals in the course of committing their crimes, thus 

reducing the potential loss to individuals and financial institutions. 

15 A Group I UCO is defined as any FBI UCO which must be approved by FBI HQ because the 

contemplated undercover activity involves a reasonable expectation that one or more of the sensitive 

circumstances listed in the Attorney General’s Guidelines for Undercover Operations (AGG-UCO) may 

occur. A Group II UCO is an investigation which does not involve any of the sensitive circumstances 

enumerated in the AGG-UCO and which does not require FBI HQ approval. A Group II UCO must be 

instituted whenever an undercover employee engages in more than five substantive contacts with an 

individual or organizational associates and/or members per investigation. 

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During FY 2011, the Financial Institution Fraud Unit developed a strategy to 

target ongoing loan origination mortgage fraud schemes by using a national 

platform UCO. In June 2011, the Financial Institution Fraud Unit sent an electronic 

communication (EC) to all FBI field offices informing them of the approval this 

operation. This UCO sought to lessen the administrative burden of initiating an 

undercover operation by streamlining the process. 

According to Financial Institution Fraud Unit, the majority of their 

communications with the field are with field supervisors and program coordinators. 

The Financial Institution Fraud Unit provided several electronic communications 

which were disseminated to every field office with directions on how to utilize the 

platform UCOs. In addition, several secure video teleconferences were held with 

field offices regarding utilization of UCOs. However, during our review, we were 

told that there was inadequate coordination and communication between FBI 

headquarters and FBI field offices related to implementation and execution. Some 

Special Agents at the field offices we visited reported that mortgage fraud 

investigations did not easily lend themselves to UCOs, despite the push from the 

Financial Institution Fraud Unit to initiate mortgage fraud UCOs. According to 

several Special Agents, the Financial Institution Fraud Unit did not provide enough 

specific direction or training on how to commence a mortgage fraud UCO. In 

another instance, we learned that Special Agents assigned to investigate mortgage 

fraud were unaware of the operational platform.16 

Based on the information we received at the field offices we visited it appears 

that the Financial Institution Fraud Unit provided guidance on initiating a mortgage 

fraud UCO to field supervisors and program coordinators; however, the Special 

Agents assigned to investigate mortgage fraud were unaware or uninformed. 

Therefore, we recommend that the FBI revisit its existing guidance on initiating a 

mortgage fraud UCO and ensure that this training reaches all levels within the field. 

Target Intelligence Packages 

In September 2009, the FBI established the Financial Intelligence Center 

(FIC) to provide tactical analysis of intelligence datasets and financial databases.

17 

The FIC used evolving technology and data exploitation techniques to create target 

intelligence packages (TIP) to identify the most egregious criminal enterprises and 

to enhance current criminal investigations. To create mortgage fraud TIPs, the FIC 

utilized approximately 24 unique databases which ranged from open source 

information, other government agency systems, and commercial sites. The FIC 

worked jointly with the Financial Institution Fraud Unit to assist FBI field offices by 

creating mortgage fraud targeting packages. In FY 2010 and 2011, the FIC 

produced and disseminated 61 mortgage fraud TIPs to the field offices. 

16 The FBI’s oversight of these mortgage fraud undercover operations (such as the approval 

process, accounting, and use of funds) were beyond the scope of this audit. 

17 According to the FBI, in September 2012, the FIC was disbanded. It has been replaced by 

intelligence fusion cells within FBI’s Criminal Investigative Division. 

12
 
 

 

 

 

 

 

 

 

 

 

 

 

 

As part of this audit, we reviewed 15 of these TIPs, and based on our review, 

only 1 of the 15 TIPs that were disseminated to the field offices we visited resulted 

in the initiation of a mortgage fraud investigation. According to the former FIC Unit 

Chief, some of the TIPs did not result in investigations being opened by the FBI field 

offices that received them because of a lack of time and resources. This position 

was echoed by special agents and supervisors we interviewed in the field offices we 

visited, who stated that their offices already had a significant backlog of 

unaddressed and pending mortgage fraud investigations. We also learned that 

some TIPs either duplicated an already existing investigation in the field office or 

were not as monetarily significant as other existing investigations. The Chief of the 

FBI’s Financial Crimes Section also acknowledged that many of the mortgage fraud 

TIPs did not result in the opening of investigations. While the TIPs did not often 

result in the opening of mortgage fraud investigations, the receiving field offices we 

interviewed believed that the TIPs were comprehensive and well-written. 

At the conclusion of this audit we learned that due to limited resources, the 

FBI no longer produces TIPs for mortgage fraud. We believe this is a further 

indication that mortgage fraud is a declining priority for the Department. 

EOUSA and USAO Prosecutorial Effort 

Within DOJ, the 94 USAOs serve as the nation’s principal litigators who are 

primarily responsible for prosecuting individuals who violate U.S. criminal laws. The 

Executive Office for U.S. Attorneys (EOUSA) acts as a liaison between DOJ and the 

U.S. Attorneys by forwarding direction and guidance from the Attorney General and 

Deputy Attorney General to the USAOs. The EOUSA provides management 

oversight and administrative support to the USAOs, which includes allocating 

resources and maintaining resource related and casework databases. However, 

each U.S. Attorney operates with a significant level of autonomy and EOUSA does 

not instruct individual USAOs how to focus or prioritize their prosecutorial efforts. 

Within the EOUSA, the Office of Legal and Victim Programs provides the 

USAOs with legal and programmatic guidance and support in numerous program 

areas. Two AUSAs on detail to the Office of Legal and Victim Programs serve as the 

White Collar Crime Coordinators for EOUSA. The White Collar Crime Coordinators 

are responsible for assisting EOUSA and the USAOs in assessing and administering 

their white collar crime programs, which include mortgage fraud. 

To enhance efforts in the areas of mortgage fraud, bankruptcy, affirmative 

civil enforcement, and white collar crime, Congress appropriated EOUSA and the 

USAOs with additional funds and manpower resources. The following chart shows 

the amount of funding appropriated, as well as new attorney positions and new 

non-attorney positions created for each fiscal year to address financial fraud. 

13
 
 

 

 

 

 

 

 

EOUSA and USAO Financial Fraud Funding & Resources 

FY 2009 2010 2011 Total 

Funding 

Received 

$12,400,000 $7,500,000 $0 $19,900,000 

New Attorney 

Positions 

60 35 0 95 

New NonAttorney 

Positions 

18 8 0 26 

Source: EOUSA 

Data on Mortgage Fraud Prosecutions 

We sought to evaluate the number of criminal prosecutions that the DOJ had 

undertaken in light of the additional funding provided by Congress. EOUSA 

maintains the Legal Information Office Network System (LIONS), which is the case 

management and resource management system for the 94 USAOs, as well the 

U.S. Attorneys’ Monthly Resource Summary Reporting System (referred to as the 

USA-5). 

According to EOUSA officials, LIONS is a tool used to assist the USAOs in 

assessing staff caseloads and managing their offices. These EOUSA officials also 

stated that the LIONS system was not designed as a statistical system and 

therefore can be an imperfect tool for responding to specific, detailed inquiries 

seeking comprehensive, uniform nationwide data sought for purposes other than 

case management. Despite these limitations, EOUSA officials said that LIONS is 

frequently used to provide the data used for the Attorney General's Annual Report, 

the United States Attorneys' Annual Statistical Report, and numerous requests for 

statistical data from the Office of Management and Budget, Congress, and the 

public at large. 

In a July 2008 EOUSA memorandum, it was noted that Congress, regulatory 

agencies, industry groups, and the general public, were increasingly interested in 

DOJ mortgage fraud prosecutions. The EOUSA memorandum stated that it had 

been difficult for DOJ to demonstrate the extent of USAOs’ mortgage fraud activities 

and progress because mortgage fraud cases were not tracked separately in LIONS. 

Therefore, the memorandum announced the creation of a new mortgage fraud code 

in LIONS which covered all types of mortgage fraud schemes in order to more 

accurately track mortgage fraud prosecutions. 

Nonetheless, during our review, AUSAs in every district we contacted 

informed us that the information provided in LIONS should not be considered a 

complete or reliable indicator of the work their offices had done to address 

mortgage fraud, adding that there were instances of underreporting and 

misclassification of mortgage fraud cases. It was explained that mortgage fraud 

cases are often coupled with other criminal activities, such as organized crime or 

identity theft. We were told that, when initiating a case file in LIONS, an AUSA may 

14
 
 

 

 

 

 

 

 

 

 

 

 

 

 

fail to include the mortgage fraud code if it is not the leading charge in a case. In 

addition, several AUSAs said that in some instances active cases that originated 

prior to the creation of the mortgage fraud code might not have been re-coded. 

According to EOUSA, AUSA’s are required to certify the accuracy of their 

LIONS case information biannually. In addition, EOUSA officials told us that its 

Evaluation and Review Staff has a management standard addressing data entry into 

LIONS. This management standard is reviewed every three years during onsite 

legal evaluations. EOUSA told us at the conclusion of the audit that given these 

certification procedures, LIONS is a valuable measure of the Department’s 

prosecution efforts for a wide array of cases, including mortgage fraud. While we 

think these safeguards are important, we note that the data entered into LIONS can 

be accurate while not necessarily being complete. In addition, as we describe 

above, EOUSA officials told us during the audit that the LIONS system was not 

designed as a statistical system and therefore can be an imperfect tool for 

responding to specific, detailed inquiries seeking comprehensive, uniform 

nationwide data sought for purposes other than case management. 

USAOs utilize a form called USA-5 to record time spent by USAO personnel 

on various categories of matters or cases they have worked on. USA-5 does not 

have a category specifically for mortgage fraud. Instead, mortgage fraud time is 

captured in a broader category under financial institution fraud. This category 

encompasses several program areas, in addition to mortgage fraud. As a result, 

EOUSA was unable to determine and provide us information about how much 

attorney work time has been dedicated specifically to mortgage fraud. 

Furthermore, several AUSAs we spoke with cautioned us about the accuracy of 

USA-5 data because they did not believe that every USAO was properly attributing 

attorney time spent working on various program categories. 

Until DOJ and EOUSA definitively address the shortcomings of these systems 

to adequately track mortgage fraud cases and the attorney time spent working on 

them, the data generated by these systems will continue to be suspect and the 

Department cannot accurately evaluate USAOs efforts and accomplishments in 

addressing this crime. 

15
 
 

Number of New Mortgage Fraud Cases Filed 

Recognizing the limited nature of the LIONS data, we requested from EOUSA 

the available data related to criminal mortgage fraud prosecutions opened from 

fiscal year 2009 through 2011. USAO criminal cases originate from various 

investigative agencies such as the FBI, the U.S. Department of Housing and Urban 

Development, Office of the Inspector General (HUD-OIG), the U.S. Secret Service, 

the U.S. Postal Service, and others. The data presented in the following table 

shows that from FY 2009 to FY 2010, new mortgage fraud cases filed increased by 

over 150 percent, a figure that the Department credited to greater resources 

dedicated to the program area. However, the number of new cases filed decreased 

in FY 2011. According to the AUSAs we interviewed, the FY 2011 decrease may be 

attributed to competing priorities and a shift in the type of mortgage fraud 

schemes. 

Criminal Mortgage Fraud New Cases Filed by 

Fiscal Year 

FY New Cases Filed 

2009 248 

2010 632 

2011 486 

Source: EOUSA 

Of the five USAOs we visited, all five had an AUSA who was assigned to be 

the Office’s mortgage fraud coordinator. We found that, in all but one office, AUSAs 

were not dedicated to prosecuting mortgage fraud and instead handled dozens of 

case that covered multiple program areas within their criminal section. According 

to many of the AUSAs we interviewed, several of the program areas they handled 

were at one time considered a priority, a current DOJ effort or initiative, or 

individual U.S. Attorney preference. These AUSAs reported that the result has been 

a priority fatigue. 

Many of the AUSAs we interviewed told us, similar to what we had heard 

from FBI officials, that there has been a shift over the past decade in the most 

common type of mortgage fraud scheme, from loan origination to foreclosure 

rescue. The victims of loan origination fraud are almost always the lenders; 

however, in foreclosure rescue, the victims are innocent homeowners who have lost 

their homes or have been forced to file for bankruptcy as a result of these fraud 

schemes. 

To target the perpetrators of foreclosure fraud, the FBI Financial Institution 

Fraud Unit developed a strategy for a national initiative, which started as a pilot in 

an FBI Field Office. In the initiative’s strategy document, the FBI acknowledged the 

challenges in prosecuting this type of fraud by stating that foreclosure rescue 

schemes are severely hindered by the monetary thresholds established in each 

judicial district. The document continued to explain that these thresholds limit 

prosecutions of mortgage fraud cases to high dollar loss cases and therefore would 

16
 
 

 

 

 

 

 

 

 

 

require that hundreds of victims be identified before an investigation targeting 

distressed homeowners would be prosecuted. Based on our interviews, none of the 

AUSAs we spoke with provided us with documentation supporting specific dollar 

thresholds. Some USAOs stated that they do not have dollar thresholds; although, 

their local FBI field offices believed that such thresholds were applied as reflected in 

the FBI national initiative document. 

We believe that strictly applying monetary thresholds may not always be the 

best way to evaluate cases. Although distressed homeowner fraud cases may 

involve low dollar losses, we were told that they can cause significant harm to 

communities throughout the United States. While we understand that USAO 

thresholds are utilized on a case by case basis, because such thresholds are treated 

as a limiting factor by the FBI in pursuing fraud cases, we believe a consequence of 

these USAO thresholds could be a reduction in certain cases brought by the FBI or 

other law enforcement agencies. Accordingly, we recommend that, through 

EOUSA, DOJ direct all USAOs to periodically assess any monetary thresholds 

applied to mortgage fraud cases to ensure they are reasonably based upon the 

threat within their respective jurisdictions and adequately allow for non-monetary 

harms that result from mortgage fraud schemes, as well as ensure that law 

enforcement agencies in their respective districts have a clear understanding of any 

limiting factors being applied to such cases. 

Tracking Prosecutorial Outcomes 

As the following chart shows, in FY 2009 and FY 2011 USAOs reported an 

increase in both the number of defendants in terminated cases and the number of 

defendants with a guilty disposition. For the three fiscal years, the USAOs reported 

a guilty disposition rate of approximately 93 percent. 

Criminal Mortgage Fraud Case Statistics by Fiscal Year 

FY Cases 

Terminated 

Defendants 

in Cases 

Terminated 

Defendants 

with Guilty 

Disposition18 

Guilty 

Disposition 

Rate 

2009 100 245 227 92.7% 

2010 284 536 497 92.7% 

2011 419 832 770 92.5% 

Source: EOUSA 

18 In the chart on page 9, we present FBI data that shows that the FBI reported a greater 

number of mortgage fraud convictions in each FY for the same time period. We did not compare each 

case counted as a conviction by the FBI with the cases reported by EOUSA as having a guilty 

disposition because each component classifies mortgage fraud cases differently in their case 

management systems. However, we believe the discrepancies in the reporting between these 

Department agencies is further evidence that the Department currently does not have an accurate 

understanding of its overall mortgage fraud effort. 

17
 
 

 

 

 

 

 

 

This disposition information does not identify the role of the defendants 

involved in these mortgage fraud cases. The data does show, however, that the 

number of defendants with a guilty disposition increased steadily over FY 2009 to 

2011. 

Mortgage fraud cases often involve a number of defendants with varying 

levels of complicity. Generally, mortgage fraud schemes require the participation, 

or at least acquiescence, of a number of players, such as straw buyers, real estate 

agents, appraisers, mortgage brokers, and closing attorney/agent. The LIONS 

database, which as discussed above was not intended to act as a data gathering 

tool, does not indicate whether mortgage fraud prosecutions were directed against 

the individuals responsible for organizing the fraud or against secondary actors, 

such as straw buyers. 

Due to the importance of this issue and public interest in mortgage fraud, we 

believe that DOJ should take steps to track additional information on its mortgage 

fraud efforts, such as the position or business title of defendants. The U.S. 

Attorney for the Southern District of New York has testified before the U.S. 

Sentencing Commission that “mortgage fraud schemes cause greater harm, are 

more widespread, and more severely undermine the confidence of the public in the 

real estate and mortgage industry when industry professionals are involved. Real 

estate and mortgage professionals should be trusted gatekeepers of the system, 

not facilitators of fraud. As such, they should especially be deterred from using 

their insiders' knowledge to exploit weaknesses in the industry and vulnerabilities in 

the public.” Therefore, capturing the position or level of an individual defendant 

would allow DOJ to better understand and assess the effectiveness of its mortgage 

fraud enforcement efforts and performance. Prosecuting higher level defendants 

may also deter further mortgage fraud on a broader organizational or industry-wide 

basis, rather than enforcement against individual straw purchasers. 

With a better understanding of the overall effort and performance DOJ can 

better respond to requests for information and better educate the public about its 

efforts to combat mortgage fraud. For example, in March 2012, in a letter to the 

Attorney General, Senator Charles Grassley asked DOJ to provide specific 

information on its mortgage fraud cases, including the business title of the 

defendants convicted. While DOJ responded to the Senator’s request, it was unable 

to provide information on the business title of the defendant convicted because of 

these system limitations. Accordingly, we recommend that DOJ and EOUSA 

develop a method to capture additional data that will allow DOJ to better 

understand the results of its efforts to investigate and prosecute mortgage fraud. 

Local FBI and USAO Coordination 

We found that in some of the locations we visited, communication and 

coordination between the local FBI field office and the USAO was lacking as it 

related to addressing, prioritizing, and collaborating to effectively combat mortgage 

fraud. For example, in one of the locations we visited, the FBI field office serves 

two different USAOs. During our visit, we determined that a strained relationship 

18
 
 

 

 

 

 

 

 

 

 

existed between the FBI field office and one of the two USAOs regarding mortgage 

fraud cases. According to several FBI Special Agents we spoke with, they believed 

this particular USAO had not handled mortgage fraud cases in a timely manner and 

as a result, several of the field office white collar crime squads preferred not to 

refer cases to them. However, the Criminal Chief in this USAO provided a much 

different assessment and stated that he was unaware of any problem and that his 

office had no known coordination issues with the local FBI field office. 

In contrast, officials from the same FBI field office reported that they had a 

good working relationship with the other USAO they serve. Yet, AUSAs from that 

USAO stated that their district had turned to other investigative agencies for 

mortgage fraud cases, citing the local FBI field office’s lack of interest in 

investigating mortgage fraud. 

In another location, an official from the USAO and an FBI official from the 

local field office readily admitted that the communication and the coordination 

between their offices on mortgage fraud and other matters had been difficult and 

needed improvement. The same USAO official also expressed concern about the 

lack of experience and expertise of the Special Agents handling mortgage fraud 

cases for the local FBI field office. 

In contrast, one of the locations we visited appeared to be exemplifying good 

communication and coordination related to combating mortgage fraud. In this 

location the USAO and the local FBI field office are a part of the local Mortgage 

Fraud Strike Force.19 According to FBI and USAO officials from this location, this 

strike force has acted as a resource multiplier, enabling a dedicated staff of AUSAs, 

FBI Special Agents, as well as other investigative agencies, to communicate and 

coordinate mortgage fraud efforts jointly and frequently. As exhibited in the 

following chart the USAO with the strike force – USAO A – handled 164 mortgage 

fraud cases in FYs 2009 through 2011. 

USAOs New Mortgage Fraud Cases Filed by Fiscal Year 

FY USAO A USAO B USAO C USAO D USAO E Total 

2009 51 6 41 14 16 128 

2010 66 12 35 24 25 162 

2011 47 14 11 18 27 117 

Total 164 32 87 56 68 407 

Source: EOUSA 

We believe that coordination and communication issues between local FBI 

field offices and USAOs, such as those described above, can hinder mortgage fraud 

investigations and prosecutions and that continued efforts should be made to 

improve lines of communication and coordination in these offices and throughout 

the country. 

19 According to the Department, during the audit period USAOs and the local FBI field offices 

participated in over 90 working groups and task forces dedicated to combating mortgage fraud. 

19
 
 

 

 

 

 

 

 

 

 

 

 

 

 

DOJ Civil Enforcement Effort 

Criminal prosecution is not the only tool available to DOJ in its fight against 

mortgage fraud. Civil mortgage fraud cases filed by DOJ have led to the imposition 

of monetary judgments and fines against those who have committed mortgage 

fraud by defrauding the federal government. Civil tools and remedies, such as the 

False Claims Act or the Financial Institution Reform, Recovery, and Enforcement Act 

of 1989 (FIRREA), provide DOJ with various options that can be used to pursue 

those responsible for mortgage fraud schemes and recover government funds.20 

One of the responsibilities of the DOJ Civil Division is bringing lawsuits on 

behalf of the United States to recoup money lost through fraud, loan defaults, and 

the abuse of federal funds. Within the Civil Division, the Commercial Litigation 

Branch, Fraud Section (Civil Fraud Section) works with USAO civil litigators 

nationwide to litigate cases involving financial fraud against the federal 

government. More recently, the Civil Division expanded the Consumer Protection 

Branch responsibilities to include consumer-focused mortgage fraud investigations 

and prosecutions. The Consumer Protection Branch, although within the Civil 

Division, works on both civil and criminal matters. These matters can include the 

full range of mortgage fraud schemes described throughout this audit, from 

origination fraud to foreclosure rescue schemes. The remedies that the Consumer 

Protection Branch would seek might include incarceration, criminal fines, forfeiture, 

restitution to victims, and reforms of an organization’s operations. 

In 2011, the then-Assistant Attorney General of the Civil Division told 

Congress that mortgage fraud was a top priority of the Department, because of the 

public dollars at stake. In speaking at an outside conference, the then-Assistant 

Attorney General added that the Civil Division increased its efforts to curb mortgage 

fraud through greater enforcement and increased prevention efforts to help educate 

consumers about mortgage fraud and how to avoid it. 

In FY 2010, the Civil Division received additional funding and new positions 

to specifically address financial rescue schemes which are considered a form of 

mortgage fraud. The Civil Division did not receive any additional mortgage fraud 

related funding or new positions for FY 2011. 

20 31 U.S.C. §§ 3729–3733 (rev. 2009) and Pub. L. No. 101-73 103 Stat. 183 (1989). 

20
 
 

 

 

 

 

 

 

 

 

 

Civil Division Financial Rescue Funding & Resources 

by Fiscal Year 

FY 2009 2010 2011 Total 

Funding 

Received 

$0 $10,000,000 $0 $10,000,000 

New Attorney 

Positions 

0 87 0 87 

New NonAttorney 

Positions 

0 31 0 31 

Source: DOJ Civil Division 

Civil Enforcement Data 

Civil mortgage fraud cases are generally investigated by HUD-OIG, whose 

primary focus is the fraudulent underwriting of Federal Housing Administration 

(FHA) insured loans. The Civil Fraud Section, in conjunction with HUD-OIG, has 

coordinated several initiatives to recover misspent FHA insurance funds from 

lenders that acted with reckless disregard when underwriting loans guaranteed by 

FHA insurance. To achieve these efforts, the Civil Fraud Section has relied upon the 

investigative resources of HUD-OIG as well as their own limited investigative 

resources which include a handful of investigators and auditors. 

In July 2011, Project High Default Lender was initiated by HUD in connection 

with the Civil Division and provided 84 USAOs with lender default data for potential 

civil investigations. A memorandum from the Acting HUD Inspector General, along 

with lender default data, and contact information for HUD-OIG personnel in each 

district, was provided to USAOs to allow them to determine from the data whether 

civil investigations should be opened. Approximately 40 civil investigations were 

opened as a result of this effort. 

To better understand the results of this initiative as well as the overall civil 

efforts of the USAOs, we requested statistical data from the Civil Division and 

EOUSA. We received statistical data from the Civil Division about its mortgage 

fraud cases. All of this data reflected cases that were worked jointly by the Civil 

Division with the USAOs. We did not receive data from EOUSA because EOUSA 

does not specifically code cases that involve mortgage fraud. Rather, the LIONS 

case management system has a code for “Fraud” and a subcode for “Financial 

Institution Fraud,” which the LIONS user manual states should be used in any civil 

action involving financial institution fraud, including mortgage fraud or foreclosure 

rescue schemes, as well as penalties involving financial institutions, whether 

affirmative or defensive.21 As a result, the Office of Legal and Victim Programs’ 

Counsel told us that EOUSA cannot identify which civil cases were specifically 

mortgage fraud cases based solely on the use of this subcode. 

21 Affirmative Civil Enforcement refers to filing civil lawsuits on behalf of the United States. 

The purpose of these civil actions is to recover government money lost to fraud or other misconduct. 

Defensive Civil Litigation refers to cases that defend the United States. 

21
 
 

 

 

 

 

 

 

 

 

 

Without specific data related to DOJ’s civil enforcement efforts, DOJ cannot 

easily understand and evaluate its overall civil efforts to address mortgage fraud. 

As we noted above, we believe that due to the high level of interest in DOJ’s 

mortgage fraud efforts, DOJ should develop a method to better capture its overall 

mortgage fraud effort. Therefore, we recommend that DOJ and EOUSA develop a 

method to readily identify civil mortgage fraud cases. 

Civil Enforcement Coordination and Resource Limitations 

We were able to review civil mortgage fraud case data that was provided to 

us directly from the USAOs we visited. Overall, we found that two of the five 

district USAOs we visited did not file any civil mortgage fraud cases between FYs 

2009 through 2011. The remaining three offices provided us with a summary of 

each mortgage fraud civil case filed along with other related information, including 

the amount recovered. From our limited review of these civil cases, approximately 

$1.5 billion of fraudulently-obtained government taxpayer funds were recovered as 

a result of the efforts of these offices. We found that the USAOs that had filed 

multiple civil mortgage fraud cases had good working relationships with their local 

HUD-OIG office, and had other resources available in their offices such as an inhouse auditor and contracted investigative assistance. 

An April 2010 memorandum from the Assistant Attorney General for the Civil 

Division acknowledged that HUD-OIG is the most frequent investigative partner for 

civil mortgage fraud case work, but is not the only agency that can provide 

assistance. The memorandum encouraged U.S. Attorneys to consult with the FBI 

about potential civil mortgage fraud matters and investigative resources. However, 

while USAO officials we interviewed said that FBI investigative support would be 

beneficial, they recognized that the FBI’s primary focus is national security and 

criminal investigations. According to several USAO officials, civil investigations and 

resulting referrals from the FBI are limited. FBI officials informed us that they do 

not actively pursue civil cases, but if a civil matter arises during an investigation it 

will be passed along to the appropriate authority. 

During our review, we also learned that a number of AUSAs conduct their 

own investigations in addition to their principal duties as litigators. In some 

instances, USAOs have hired full-time auditors or paid outside experts to assist in 

data-mining and statistical efforts in an effort to generate civil casework. These 

USAO officials reported success in using such outside assistance, but they also 

continued to express the need for dedicated in-house investigators to assist with 

civil enforcement efforts. 

In addition, the Civil Division Fraud Section worked with HUD-OIG to 

determine effective ways to address fraudulent loan origination and servicing 

practices in connection with the Direct Endorsement Lender Program administered 

by the U.S. Department of Housing and Urban Development (HUD), Federal 

Housing Administration, which insures single family mortgages. 

22
 
 

 

 

 

 

 

 

 

 

 

 

 

 

FFETF and DOJ Mortgage Fraud Prosecution Initiatives 

Since its creation, the FFETF’s MFWG has organized and completed two 

national mortgage fraud initiatives: Operation Stolen Dreams and the Distressed 

Homeowner Initiative. According to the MFWG, these initiatives involved a 

coordinated effort by participating agencies to target particular mortgage fraud 

schemes. Operation Stolen Dreams, which occurred between March 1, 2010, and 

June 17, 2010, focused on criminal and civil enforcement activities involving a 

broad array of mortgage fraud schemes. The Distressed Homeowner Initiative, 

which was launched on October 1, 2011, targeted criminal activities that included 

foreclosure rescue fraud, loan modification fraud, and similar crimes that victimized 

distressed homeowners. 

Each sweep culminated with a FFETF press release as well as a national press 

conference where the Attorney General highlighted the threat posed by mortgage 

fraud and demonstrated the success of the initiative by providing the sweeps’ 

results. In connection with this audit, we reviewed the results of the Distressed 

Homeowner Initiative. 

Distressed Homeowner Initiative 

On October 9, 2012 the FFETF issued a press release and held a press 

conference, led by the Attorney General and joined by the Secretary of HUD, the 

FBI Associate Deputy Director, the Chairman of the Federal Trade Commission, and 

the HUD Inspector General, to publicize its most recent mortgage fraud initiative 

called the Distressed Homeowner Initiative.22 During the press conference, the 

Attorney General announced that the initiative, launched by the FBI on October 1, 

2011, resulted in 530 criminal defendants being charged, including 172 executives, 

in 285 criminal indictments or informations filed in federal courts throughout the 

United States in the 12 month period between October 1, 2011, and September 30, 

2012. According to the Attorney General’s statements at the press conference, 

these cases involved more than 73,000 homeowner victims and total losses by the 

victims estimated at more than $1 billion. The Attorney General also announced 

that 110 federal civil cases were filed against over 150 defendants for losses 

totaling at least $37 million, and involving more than 15,000 victims. Similar 

information was included in the Department’s press release. 

Concern Over the Accuracy of the Reported Statistics for the Distressed 

Homeowner Initiative 

Shortly after the Department’s October 9, 2012, press conference we 

requested a meeting to discuss the results of the Distressed Homeowner Initiative 

in greater detail with Department and FBI officials. We also requested any 

22 See Appendix IV for the Attorney General’s statement at the October 9, 2012, press 

conference on the Distressed Homeowner Initiative. 

23
 
 

 

 

 

 

 

documentation that would support the statistics presented at the press conference 

by the Attorney General. 

We were told that the FBI was responsible for soliciting, gathering, and 

collecting the data from the participants involved in the Distressed Homeowner 

Initiative, which included various federal, state, and local agencies. To collect the 

data, the FBI provided an electronic spreadsheet that contained multiple columns of 

requested data to each of the participating agencies to complete and return to the 

FBI. The FBI accepted the completed spreadsheets as submitted, and other than 

limited checking for possible data duplication, the FBI did not perform any 

additional vetting of the data. FBI officials stated that there was too little time and 

resources available to allow for vetting of the data. FBI officials told us that it 

trusted the various agencies to verify their information prior to submission and 

assumed that the agencies were accurate in their reporting of the information. 

Once all of the spreadsheets were submitted by the participating agencies, the FBI 

incorporated the raw data into a summary spreadsheet which tallied the results of 

the sweep. On October 5, 2012, 4 days before the FFETF press conference, the FBI 

submitted this summary spreadsheet to the Department through the Executive 

Director of the FFETF. The FBI officials we spoke with said that it did not provide 

any accompanying language regarding the information. 

The Press Secretary in DOJ’s Office of Public Affairs (OPA) who was 

responsible for issuing the press release related to the Distressed Homeowner 

Initiative told us that the Executive Director of the FFETF contacted her a few 

months before the end of FY 2012 to initiate plans for public disclosure of the 

sweep’s outcome. After that initial contact, the Press Secretary participated 

regularly in meetings with the MFWG members, including the FBI, regarding the 

sweep. During those meetings, the participants agreed that that the Distressed 

Homeowner Initiative would only report on indictments that occurred during FY 

2012 that were specifically distressed homeowner-related crimes. 

According to the OPA Press Secretary, the FBI’s summary spreadsheet, 

submitted on October 5, 2012, contained several data categories of information 

related to the Distressed Homeowner Initiative. These categories included: 

number of defendants, number of defendants categorized as executives, number of 

informations and indictments, number of victims, and estimated losses. The OPA 

Press Secretary inserted this information into a draft press release and then 

provided the draft to the MFWG participants for review. According to the OPA Press 

Secretary, in response, several of the participants provided additional language, 

edits, and comments on the press release, which were incorporated into the final 

version. The FBI officials we first spoke with stated that the FBI did not review the 

Department’s press release prior to its issuance. However, the FBI later informed 

us at the conclusion of the audit that an FBI official did review the press release but 

did not propose any edits to the figures. 

We were told that, following the Attorney General’s press conference, DOJ 

officials became concerned with the accuracy of the reported statistics. The 

Department received multiple press inquiries asking for support for the statistics, 

24
 
 

 

 

 

 

 

 

 

 

 

including a listing of the cases referenced in the press release and at the press 

conference. The OPA Press Secretary said she immediately attempted to obtain 

from the FBI a list of the cases that supported the spreadsheet that the FBI 

previously had provided to the Department, but was unable to do so for more than 

a month after the press conference. According to the OPA Press Secretary, the FBI 

indicated that it never intended to release a complete list of case names. At the 

conclusion of the audit, the FBI clarified and stated that the delay resulted from its 

understanding that the complete list would be publicly released, and therefore had 

to be redacted to ensure that law enforcement sensitive information (including 

names that would reveal ongoing undisclosed investigations) was not 

inappropriately disclosed. 

The day after the press release was issued, the OPA Press Secretary 

participated in a conversation with FBI officials and the Executive Director of the 

FFETF regarding concerns that had been raised about the accuracy of the statistical 

information included in the press release. During this meeting, an FBI official 

stated that the information provided to OPA included the results of criminal 

enforcement actions that were filed prior to the beginning of FY 2012, which was 

contrary to the earlier agreement about the reporting of only FY 2012 indictments. 

On November 13, 2012, the FBI provided a case list it had compiled for the 

sweep to the Executive Director of the FFETF and the OPA Press Secretary. The 

Executive Director of the FFETF and the OPA Press Secretary worked together in an 

attempt to verify a small sample of the cases but were unsuccessful. As a result, 

OPA and the FFETF determined that the listing of cases could not be provided to the 

media as requested. 

Due to the inaccuracies found during their sample review of cases, the 

Executive Director of the FFETF, the OPA Press Secretary, and a small review team 

initiated a complete case review of all the data provided by the FBI and reported 

publically in the press release. Based on the results of that review, the Executive 

Director of the FFETF stated to us that numerous significant errors and inaccuracies 

existed with the information that was reported publicly. For example, multiple 

cases were found to be included in the reported statistics that were not considered 

distressed homeowner-related fraud. Also, the review found that a significant 

number of cases were included in the initiative with indictments prior to the FY 

2012 timeframe. According to the Executive Director of the FFETF and the OPA 

Press Secretary, at this point they had no confidence in the figures reported at the 

press conference. Nevertheless, we found that the Department continued to cite 

these seriously flawed statistics in mortgage fraud press releases that it issued in 

the ensuing months. 

We obtained the FBI’s summary spreadsheet that was provided to the OPA 

for the development of the press release, as well as the supporting data gathered 

by the FBI from the agencies that participated in the Distressed Homeowner 

Initiative. Based on our review of the supporting data for the summary 

spreadsheet, we found what we believe to be inconsistencies with the supporting 

data and how that data was summarized. Specifically, we found that the electronic 

25
 
 

 

 

 

 

 

spreadsheet that was sent to the MFWG participants included a column labeled 

“Executive?”. The FBI officials we spoke with said that this term was not defined 

during data collection and what constituted an executive was subjective and left up 

to the discretion of the participating agency submitting the data. We found that 

MFWG participants included various responses for the column, which totaled to a 

sum of 172, and that OPA used that sum in the press release as representing the 

number of Executives prosecuted in connection with the initiative. However, we 

found that 98 of the 172 executives referenced in the Department’s press release 

were actually labeled as “Other,” “Unknown,” or “N” (apparently indicating “No”) in 

the spreadsheets. 

Distressed Homeowner Initiative Raw Data 

Responses for Executive Column 

Participant Response 

for Named Executive 

Total 

Executive 26 

President 25 

Vice President 2 

CEO 14 

CFO 1 

Board Member/Director 1 

Controller 2 

COO 1 

General Counsel 2 

Other 44 

Unknown 16 

“N” 38 

Total 172 

Source: FBI 

Overall, we found significant breakdowns in the process used to develop the 

results of the Distressed Homeowner Initiative. We found that the FBI did not have 

a rigorous methodology for independently verifying the criminal mortgage fraud 

statistics provided by law enforcement agencies nationwide and announced during 

the press conference on October 9. 2012. The FBI did not clearly define for the 

participating agencies the data that it was requesting nor did it verify the data that 

was submitted. When providing the data to the FFETF, the FBI did not include 

supporting documentation for the summary data. We find this process to be 

disturbing, and it led the Department to report inaccurate information to the public 

about the claimed accomplishments of the Distressed Homeowner Initiative. 

Further, the inability of the Department to correctly identify its own mortgage fraud 

criminal prosecutions, which are part of a supposedly high-priority initiative, 

reinforces the concerns, identified previously, regarding the nature of the data 

contained in the LIONS system. We recommend that the Department improve its 

26
 
 

 

 

 

 

 

 

 

 

 

methodologies for soliciting, collecting, reviewing, and reporting the results of its 

initiatives. 

Revised Statistics for the Distressed Homeowner Initiative 

After we first learned of the Department’s concerns about the Distressed 

Homeowner Initiative statistics, we repeatedly followed up with Department officials 

about their efforts to correct the statistics in the months that followed. It was not 

until August 9, 2013, 10 months after the DOJ first recognized that its data was 

likely severely flawed, that the FBI released a memorandum to the FFETF MFWG 

members, which concluded that the statistics announced during the October 9, 

2012, press conference overstated the number of defendants that should have been 

included as part of the Distressed Homeowner Initiative, as well as the 

corresponding estimated loss amount and number of victims23. According to the 

memorandum: 

...in response to questions raised about the statistics, an extensive 

review of the reported cases was conducted. This review concluded 

that the original figures included not just criminal defendants who had 

been charged in Fiscal Year 2012, as reported, but also a number of 

defendants who were the subject of other prosecutive actions – such 

as a conviction or sentence – in Fiscal Year 2012. In addition, last 

October’s announcement included a number of defendants who were 

charged in mortgage fraud cases in which the victim(s) did not fit the 

narrow definition of distressed homeowner that the initiative targeted. 

There are significant differences between the October 9, 2013, press 

conference numbers and the numbers in the August 9, 2013, FBI memorandum. 

As the following table shows, the criminal statistics originally reported were 

overstated immensely. In addition, the Department no longer includes the number 

of executives charged in its revised statistics. 

23 See Appendix V for the FBI Memorandum. 

27
 
 

 

 

 

 

 

Comparison of Distressed Homeowner Initiative Statistics 

October 9, 

2012 Press 

Conference 

August 9, 2013 

FBI Memorandum24 

Difference 

Criminal 

Defendants 

530 107 -80% 

Executives 

Charged 

172 Not Included 

Criminal Victims 73,000 17,185 -76% 

Criminal Loss 

Amount 

$1 billion $95 million -91% 

Civil Defendants 150 128 -15% 

Civil Victims 15,000 19,198 28% 

Civil Loss Amount $37 million $54 million 46% 

Source: DOJ and FBI 

The Department’s October 9, 2012, press release and the transcript of the 

Attorney General’s remarks at the Distressed Homeowner Initiative press 

conference, which can be found on the Departments public website, now include a 

disclosure citing the inaccuracy of the originally reported statistics; and the 

language in each has revised wording and statistics based on the FBI’s August 2013 

memorandum. However, as of August 15, 2013, we found that the FBI and USAOs 

continued to present on their public websites the seriously flawed October 2012 

statistics because they also had been included in various mortgage fraud-related 

press releases that were issued by the Department in the ensuing 10 months. 

Therefore, we recommend that the FFETF ensure that all agencies update and 

acknowledge in online and other publicly available materials related to the 

Distressed Homeowner Initiative the corrections to the inaccurately reported 

statistics. 

Operation Stolen Dreams 

Operation Stolen Dreams was a FFETF mortgage fraud initiative that focused 

on criminal and civil enforcement activities from a broad array of mortgage fraud 

schemes that occurred between March 1, 2010, and June 17, 2010. According to a 

press release issued by the Department on June 17, 2010, Operation Stolen 

Dreams “involved 1,215 criminal defendants nationwide, including 485 arrests, who 

are allegedly responsible for more than $2.3 billion in losses.” 

During our review of the data issued by the Department regarding the 

Distressed Homeowner Initiative, we were told that the FBI employed a similar 

methodology in obtaining statistics for Operation Stolen Dreams. Although we did 

not audit the reported results of Operation Stolen Dreams, we recommend that DOJ 

revisit the results of the data collection and public reporting to determine if 

corrective action is necessary. 

24 The OIG did not audit the revised figures presented in the FBI Memorandum on the 

Distressed Homeowner Initiative. 

28
 
 

 

 

 

 

 

 

Conclusion 

The Department has stated publicly that mortgage fraud is a high priority, 

and the creation of the MFWG was an attempt by the Department to more 

effectively coordinate and oversee the effort to address mortgage fraud. 

Additionally, the USAOs’ and FBI’s participation on more than 90 local task forces 

and working groups appeared to further support the fight against mortgage fraud. 

However, we also found that the FBI did not rank mortgage fraud among its highest 

ranked priority white collar crimes. We further found that, despite receiving 

significant additional funding from Congress to pursue mortgage fraud cases, the 

FBI in adding new staff did not always use these new positions to exclusively 

investigate mortgage fraud. Moreover, when we attempted to assess the 

effectiveness of the Department’s efforts in pursuing mortgage fraud cases, we 

found that DOJ could not provide readily verifiable data related to its criminal and 

civil enforcement efforts. The DOJ’s release of significantly flawed information at a 

highly publicized press conference in October 2012 regarding the purported success 

of the FFETF’s and the DOJ’s recent mortgage fraud initiative reflects the lack of 

accurate data maintained by the Department regarding its mortgage fraud efforts, 

as well as the Department’s serious failure to adequately vet information that it was 

presenting to the public. Only days after the press conference the Department had 

serious concerns over the accuracy of the reported statistics, yet it was not until 

August 2013 when the Department informed the public that the October 2012 

reported statistics were indeed flawed. Moreover, during those 10 months, the 

Department continued to issue press releases publicizing statistics it knew were 

seriously flawed. We believe the Department should have been more forthright at a 

much earlier date about this flawed information. 

In this audit report, we provide seven recommendations to improve DOJ’s 

approach and efforts to address and report on mortgage fraud. 

Recommendations 

We recommend that the Department of Justice, as the Chair of the Financial Fraud 

Enforcement Task Force: 

1.	 Ensure that all agencies update online and other publicly available materials 

related to the Distressed Homeowner Initiative, acknowledge the corrections 

to the inaccurately reported statistics, and notify any key stakeholders of the 

changes. 

2.	 Revisit the results of Operation Stolen Dreams to determine if corrective 

action on the publicly reported results is necessary. 

29
 
 

 

 

 

We recommend that the Department of Justice: 

3.	 Implement a methodology for properly soliciting, collecting, and reviewing 

information before publicly reporting results. 

We recommend that the FBI: 

4.	 Revisit its existing guidance on initiating a mortgage fraud UCO and ensure 

that this training reaches all levels within the field. 

We recommend that the Department of Justice and EOUSA: 

5.	 Direct all USAOs to periodically assess any monetary thresholds applied to 

mortgage fraud cases to ensure they are reasonably based upon the threat 

within their respective jurisdictions and adequately allow for non-monetary 

harms that result from mortgage fraud schemes, as well as ensure that law 

enforcement agencies in their respective districts have a clear understanding 

of any limiting factors being applied to such cases. 

6.	 Develop a method to capture additional data that will allow DOJ to better 

understand the results of its efforts in investigating and prosecuting 

mortgage fraud and to identify the position of mortgage fraud defendants 

within an organization. 

7.	 Develop a method to readily identify mortgage fraud criminal and civil 

enforcement efforts for reporting purposes. 

30
 
 

 

 

 

 

 

 

 

STATEMENT ON INTERNAL CONTROLS 

As required by the Government Auditing Standards, we tested, as 

appropriate, internal controls significant within the context of our audit 

objectives. A deficiency in an internal control exists when the design or 

operation of a control does not allow management or employees, in the normal 

course of performing their assigned functions, to timely prevent or detect: 

(1) impairments to the effectiveness and efficiency of operations, 

(2) misstatements in financial or performance information, or (3) violations of 

laws and regulations. Our evaluation of internal controls was not made for the 

purpose of providing assurance on its internal control structure as a whole. The 

DOJ components involved with this audit are responsible for the establishment 

and maintenance of internal controls. 

As noted in the Findings and Recommendations section of this report, we 

identified deficiencies in the Department’s internal controls for collecting and 

reporting statistics related to mortgage fraud initiatives that we believe adversely 

affected the Department’s ability to accurately track and report to the public on its 

mortgage fraud-related efforts and accomplishments. 

Because we are not expressing an opinion on the internal control structure as 

a whole, this statement is intended solely for the information and use of the DOJ 

components and entities involved with this audit. This restriction is not intended to 

limit the distribution of this report, which is a matter of public record. 

31
 
 

 

 

STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS 

As required by the Government Auditing Standards we tested, as appropriate 

given our audit scope and objectives, selected statistics, procedures, and practices, 

to obtain reasonable assurance that various DOJ components and entities involved 

with this audit complied with federal laws and regulations, for which 

noncompliance, in our judgment, could have a material effect on the results of our 

audit. The various DOJ components and entities that were involved with this audit 

are responsible for ensuring compliance with applicable federal laws and 

regulations. In planning our audit, we identified the following laws and regulations 

that were significant within the context of the audit objectives: 

•	 Government Performance and Results Act 

•	 Fraud Enforcement and Recovery Act of 2009 

•	 Executive Order 13519, Establishment of the Financial Fraud 

Enforcement Task Force 

Nothing came to our attention that caused us to believe that the DOJ 

components were not in compliance with the aforementioned laws and regulations. 

32
 
 

 

 

 

 

APPENDIX I
 

OBJECTIVE, SCOPE, AND METHODOLOGY 

Audit Objective 

The objective of this audit was to assess the Department of Justice’s 

approach and enforcement efforts to address mortgage fraud. 

Scope and Methodology 

We conducted this performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform 

the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. 

To perform our audit, we interviewed officials at the Federal Bureau of 

Investigation (FBI), Executive Office for United States Attorneys (EOUSA), Office of 

the Deputy Attorney General, DOJ Criminal Division, DOJ Civil Division, Office of 

Justice Programs, Antitrust Division, Tax Division, and several United States 

Attorneys’ Offices (USAO). We also interviewed personnel from non-DOJ agencies 

including the Department of Housing and Urban Development Office of the 

Inspector General, Federal Housing Finance Agency Office of the Inspector General, 

and the Treasury Department’s Financial Crimes Enforcement Network. We 

conducted site visits at five USAOs and four FBI Field Divisions. 

To accomplish our audit objective, we also analyzed documents and data 

using the scope of FY 2009 through FY 2012. 

EOUSA/USAO – Mortgage Fraud Data 

We requested that EOUSA provide us with mortgage fraud data for FYs 2009 

through 2011 regarding the number of: (1) cases filed, (2) cases terminated, 

(3) defendants charged, (4) dispositions, and (5) funding and resource data. 

As noted in our report, AUSAs in every district we contacted informed us that 

the information provided in LIONS should not be considered a complete or reliable 

indicator of the work their offices had done to address mortgage fraud due to 

instances of underreporting and misclassification of mortgage fraud cases. 

Accordingly, we did not test or verify the validity of the data provided by EOUSA, 

and our report does not contain conclusions that are based on solely on analyses of 

this data. 

FBI – Mortgage Fraud Data 

The FBI provided us data for FYs 2009 through 2011 concerning mortgage 

fraud for: (1) cases opened, (2) pending investigations, (3) convictions, 

(4) information/indictments, (5) Suspicious Activity Reports (SARs), (6) Target 

Intelligence Packets (TIPs), (7) undercover operations, (8) Administrative Time 

33
 
 

 

Capture system (TURK) data, and (9) funding and resource data. We considered 

this data in performing our audit. 

34
 
 

APPENDIX II
 

EXECUTIVE ORDER 13519
 

FINANCIAL FRAUD ENFORCEMENT TASK FORCE
 

Executive Order 13519 of November 17, 2009 

Establishment of the Financial Fraud Enforcement Task Force 

By the authority vested in me as President by the Constitution and the laws of the 

United States of America, and in order to strengthen the efforts of the Department 

of Justice, in conjunction with federal, state, tribal, territorial, and local agencies, to 

investigate and prosecute significant financial crimes and other violations relating to 

the current financial crisis and economic recovery efforts, recover the proceeds of 

such crimes and violations, and ensure just and effective punishment of those who 

perpetrate financial crimes and violations, it is hereby ordered as follows: 

Section 1. Establishment. 

There is hereby established an interagency Financial Fraud Enforcement Task Force 

(Task Force) led by the Department of Justice. 

Sec. 2. Membership and Operation. 

The Task Force shall be chaired by the Attorney General and consist of senior-level 

officials from the following departments, agencies, and offices, selected by the 

heads of the respective departments, agencies, and offices in consultation with the 

Attorney General: 

(a) the Department of Justice; 

(b) the Department of the Treasury; 

(c) the Department of Commerce; 

(d) the Department of Labor; 

(e) the Department of Housing and Urban Development; 

(f) the Department of Education; 

(g) the Department of Homeland Security; 

(h) the Securities and Exchange Commission; 

(i) the Commodity Futures Trading Commission; 

(j) the Federal Trade Commission; 

(k) the Federal Deposit Insurance Corporation; 

(l) the Board of Governors of the Federal Reserve System; 

(m) the Federal Housing Finance Agency; 

35
 
 

 

(n) the Office of Thrift Supervision; 

(o) the Office of the Comptroller of the Currency; 

(p) the Small Business Administration; 

(q) the Federal Bureau of Investigation; 

(r) the Social Security Administration; 

(s) the Internal Revenue Service, Criminal Investigations; 

(t) the Financial Crimes Enforcement Network; 

(u) the United States Postal Inspection Service; 

(v) the United States Secret Service; 

(w) the United States Immigration and Customs Enforcement; 

(x) relevant Offices of Inspectors General and related Federal entities, including 

without limitation the Office of the Inspector General for the Department of Housing 

and Urban Development, the Recovery Accountability and Transparency Board, and 

the Office of the Special Inspector General for the Troubled Asset Relief Program; 

and 

(y) such other executive branch departments, agencies, or offices as the President 

may, from time to time, designate or that the Attorney General may invite. 

The Attorney General shall convene and, through the Deputy Attorney General, 

direct the work of the Task Force in fulfilling all its functions under this order. The 

Attorney General shall convene the first meeting of the Task Force within 30 days of 

the date of this order and shall thereafter convene the Task Force at such times as 

he deems appropriate. At the direction of the Attorney General, the Task Force may 

establish subgroups consisting exclusively of Task Force members or their 

designees under this section, including but not limited to a Steering Committee 

chaired by the Deputy Attorney General, and subcommittees addressing 

enforcement efforts, training and information sharing, and victims’ rights, as the 

Attorney General deems appropriate. 

Sec. 3. Mission and Functions. 

Consistent with the authorities assigned to the Attorney General by law, and other 

applicable law, the Task Force shall: 

(a) provide advice to the Attorney General for the investigation and prosecution of 

cases of bank, mortgage, loan, and lending fraud; securities and commodities 

fraud; retirement plan fraud; mail and wire fraud; tax crimes; money laundering; 

False Claims Act violations; unfair competition; discrimination; and other financial 

crimes and violations (hereinafter financial crimes and violations), when such cases 

36
 
 

 

 

are determined by the Attorney General, for purposes of this order, to be 

significant; 

(b) make recommendations to the Attorney General, from time to time, for action 

to enhance cooperation among Federal, State, local, tribal, and territorial 

authorities responsible for the investigation and prosecution of significant financial 

crimes and violations; and 

(c) coordinate law enforcement operations with representatives of State, local, 

tribal, and territorial law enforcement. 

Sec. 4. Coordination with State, Local, Tribal, and Territorial Law Enforcement. 

Consistent with the objectives set out in this order, and to the extent permitted by 

law, the Attorney General is encouraged to invite the following representatives of 

State, local, tribal, and territorial law enforcement to participate in the Task Force’s 

subcommittee addressing enforcement efforts in the subcommittee’s performance 

of the functions set forth in section 3(c) of this order relating to the coordination of 

Federal, State, local, tribal, and territorial law enforcement operations involving 

financial crimes and violations: 

(a) the National Association of Attorneys General; 

(b) the National District Attorneys Association; and 

(c) such other representatives of State, local, tribal, and territorial law enforcement 

as the Attorney General deems appropriate. 

Sec. 5. Outreach. 

Consistent with the law enforcement objectives set out in this order, the Task 

Force, in accordance with applicable law, in addition to regular meetings, shall 

conduct outreach with representatives of financial institutions, corporate entities, 

nonprofit organizations, State, local, tribal, and territorial governments and 

agencies, and other interested persons to foster greater coordination and 

participation in the detection and prosecution of financial fraud and financial crimes, 

and in the enforcement of antitrust and antidiscrimination laws. 

Sec. 6. Administration. 

The Department of Justice, to the extent permitted by law and subject to the 

availability of appropriations, shall provide administrative support and funding for 

the Task Force. 

Sec. 7. General Provisions. 

(a) Nothing in this order shall be construed to impair or otherwise affect: 

(i) authority granted by law to an executive department, agency, or the head 

thereof, or the status of that department or agency within the Federal 

Government; or 

(ii) functions of the Director of the Office of Management and Budget relating 

to budgetary, administrative, or legislative proposals. 

(b) This Task Force shall replace, and continue the work of, the Corporate 

37
 
Fraud Task Force created by Executive Order 13271 of July 9, 2002.
 

Executive Order 13271 is hereby terminated pursuant to section 6 of that order.
 

(c) This order shall be implemented consistent with applicable law and subject to 

the availability of appropriations. 

(d) This order is not intended to, and does not, create any right or benefit, 

substantive or procedural, enforceable at law or in equity by any party against the 

United States, its departments, agencies, or entities, its officers, employees, or 

agents, or any other person. 

Sec. 8. Termination. 

The Task Force shall terminate when directed by the President or, with the approval 

of the President, by the Attorney General. 

38
 
APPENDIX III
 

DOJ COMPONENTS TASKED WITH COMBATING 

MORTGAGE FRAUD 

Office of the Attorney General 

Office of the Deputy Attorney General 

Office of the Associate Attorney General 

Executive Office for the United States Attorneys 

United States Attorneys’ Offices 

Federal Bureau of Investigation 

Criminal Division 

Civil Division 

Executive Office for United States Trustees 

Office of Justice Programs 

Tax Division 

Antitrust Division 

Civil Rights Division 

39
 
 

 

 

 

 

 

APPENDIX IV
 

DISTRESSED HOMEOWNER INITIATIVE
 

PRESS CONFERENCE
 

Attorney General Eric Holder Speaks at the
 

Distressed Homeowner Initiative Press Conference
 

Washington, D.C. Tuesday, October 9, 2012
 

Good morning. Today I’m joined by several key leaders in the federal 

government’s ongoing work to combat financial fraud – and specifically, to prevent 

and punish the various types of mortgage fraud schemes that, in recent years, have 

devastated homeowners, families, and communities nationwide. Secretary Shaun 

Donovan, of the Department of Housing and Urban Development; FBI Associate 

Deputy Director Kevin Perkins; Chairman Jon Leibowitz, of the Federal Trade 

Commission; and HUD Inspector General David Montoya are here to help announce 

the results of a groundbreaking, year-long mortgage fraud enforcement effort – the 

first ever to focus exclusively on crimes targeting homeowners. 

This national effort – known as the Distressed Homeowner Initiative – ran from 

October 1st, 2011, to September 30th of this year – and was led by members of 

the Mortgage Fraud Working Group of the Financial Fraud Enforcement Task Force. 

This landmark Initiative, spearheaded by the FBI, was launched to help streamline 

and advance investigations and prosecutions against fraudsters who allegedly 

targeted, and preyed upon, Americans struggling to keep their homes. And it’s 

been a model of success. Over the past 12 months, it has enabled the Justice 

Department and its partners to file federal criminal charges against 107 defendants 

for allegedly victimizing more than 17,185 American homeowners – and inflicting 

losses in excess of $95 million. On the civil side, as part of this Initiative, Mortgage 

Fraud Working Group Members have filed federal civil cases against 128defendants 

for losses totaling at least $54 million, and involving more than 19,000 victims. In 

addition, our Mortgage Fraud Working Group partners in the offices of state 

attorneys general also have filed civil and criminal actions with at least 3,000 

additional homeowner-victims identified. And, demonstrating that we are taking 

significant steps to protect homeowners before they are victimized, the Treasury 

Department and SIGTARP shut down or forced into compliance more than 900 

fraudulent or confusing websites and web advertisers that displayed the Treasury 

Seal – and key TARP housing program names – in an effort to dupe struggling 

homeowners looking for someone to help them. All told, in both federal and state 

criminal and civil cases, the Distressed Homeowner Initiative has identified – and 

worked to assist – more than 36,000 vulnerable victims. 

Thanks to the leadership of the Mortgage Fraud Working Group; the hard work of 

our U.S. Attorneys’ Offices and the Justice Department’s Civil and Criminal 

Divisions; the dedication of FBI officials – including personnel from at least 32 Field 

Offices; the large volume of victim complaint information made available through 

FTC databases and other sources; and the commitment of experts, agents, and 

investigators from the FTC, HUD’s Office of Inspector General, SIGTARP, the FHFA’s 

Office of Inspector General, and a range of other federal and state agencies – this 

Initiative has had a tremendous impact. 

40
 
 

 

 

 

 

 

For example, in July, five individuals were indicted in Texas for allegedly sending 

false military orders to lending institutions, claiming benefits entitled to 

servicemembers, and then leasing out the homes to collect rental payments. And 

over the last few months, in the greater Los Angeles area, a number of agencies 

have partnered with the local U.S. Attorney’s Office to “surge” investigative and 

enforcement resources in order to combat increased threats to homeowners. Last 

month, their efforts resulted in an indictment against 11 individuals for their alleged 

roles in a loan modification scheme that victimized more than 4,000 financially 

distressed homeowners, many of whom lost their homes to foreclosure as a result. 

I’m pleased to announce that in the coming weeks, the Victims’ Rights Committee 

of the Financial Fraud Enforcement Task Force, partnering with the Certified 

Financial Planner Board and the Foundation for Financial Planning – in an 

unprecedented event – will make financial consulting services available to these 

victims for free. And, in an effort to raise awareness about fraud crimes from coast 

to coast – and to keep homeowners from being victimized – today, the FBI is 

releasing a public service announcement featuring actor Tim DeKay, who portrays a 

special agent on the television show “White Collar.” We’ll play the spot after the 

press conference, and it will be online at “stopfraud.gov” as well. 

But this is only the beginning. In addition to traditional mortgage fraud crimes, 

the federal government also has committed substantial resources to identify and 

prevent other schemes that can negatively affect fragile housing markets – 

including instances of fraud in the origination, securitization, and servicing of 

mortgage loans; foreclosure public auction bid rigging; and discriminatory lending 

practices. Under the Residential Mortgage-Backed Securities Working Group of the 

Financial Fraud Enforcement Task Force, our partners in the New York State 

Attorney General’s Office recently filed a civil complaint against J.P. Morgan 

resulting from Bear Stearns’ fraudulent representations concerning the due 

diligence undertaken to ensure the quality of the loans backing its securities. As 

you’ve heard, the Department provided substantial resources to this effort, and 

other investigations remain ongoing. Thanks to the Non-Discrimination Working 

Group and the Justice Department’s Civil Rights Division, we’ve been relentless in 

investigating fair lending violations to ensure that lenders do not discriminate on 

the basis of race or color – and, in 2011 alone, settled or filed a record number of 

cases through the Division’s Fair Lending Unit. And since the beginning of this year 

– in partnership with HUD and HUD’s Inspector General – we’ve announced civil 

settlements totaling more than $1.5 billion with a variety of financial institutions 

that engaged in mortgage origination abuses in violation of HUD-FHA requirements. 

Put simply, these comprehensive efforts represent an historic, government-wide 

commitment to eradicating mortgage fraud and related offenses across the country. 

And the results obtained by the many dedicated attorneys, experts, agents, and 

investigators who stand on the front lines of this work prove that our approach is 

working; that progress is possible; and that – as long as we continue to partner 

with a range of committed allies and engage the help of an informed public – there 

is good reason for confidence in where our anti-fraud efforts will take us from here. 

41
 
At this point, I’d like to turn things over to another critical leader, and partner, in 

this work, Secretary Shaun Donovan. 

42
 
MEMORANDUM 

Subjel1: Distrcss.;cl Homeowner rniliative Date: August 9, 20 13 

To: From: 

Mortgage haud Working Group Mt:mbers Federal Bureau o[Investiga tion 

Co-Chair, M011gage Fraud Working Group 

On Ocloba- 9, 20 12, memben; nfthe Mortgage Fraud Working Group announced the results of 

the yea r-long Distressed HomeQwner Inili3th'c. This nntionwide effort targeted fraud schcmC!l that 

preyed IIpon vulnerable homeowners_ In order to protect struggling homeowners who m.1y become 

targets and incr<;i\sc!he number of criminal enforcement actions, the Initiative focusc:d on existing 

io",;sjigations involving vulnerable homeowners and S.,;llna1c:d new investigations using victim complaint 

data. It included sophisticated inn:stigativc techni([ues, such as undercover ope ation~, as well as II surge 

uf scveral1aw enforcement agencies in southern California, where many foreclosure rescue SC.lnlS were 

concentrated. The Initiative was a collaborative elTort involving participation from numcrous federal 

agcncic~ including: thc Fcderal Rurcau oflnve~tigation, the Oflke of the ln~pcetor l.cncral ofthc 

Department of Housing and Urban Development, the Federal Housing Finance Agcncy's Office of the 

Inspector G~"Ilcr al (Fffi'A-OIG), the Special Inspector General for Troubled Assd RdicfProgram 

(SIGTARP), the Internal Revenue Service - Crimina l lnvcstigation, the U. S. Postal Inspection Serviec, 

the United Slat o;:!; Secret Service, the Departnu .. "Ilt of Justice's U.S. Tn/stee Program, the Fe<leral Trade 

Commission, and the Consumer Financial Protection Bureau. "Ibis targ('1e<1 approach resuhed in the 

successful filing of many criminal and civil cases across the country, but regrettably, the statistics 

reported in October included case!! that fdl outside the specific parameters ofthc Initiative. 

Aller the results of the Initiative were reported, in response to questions raised about the statistics, 

an e,xtcnsive review of the rcporll;Xl cases was conducted. "Ibis review concluded that the original figures 

included not just criminal defendants who had been charged in Fiscal Year 2012, as reported, but also a 

number of defemlanls who were the subject of other prosecutive actions - such as a oonviction or 

sentence - in Fisc.ll Year 20 12 In addition, last October's announcem~"Ilt included a nWllber of 

defendants who were charged in mortgage fraud cases in which the victim(s) did not fit the nalTow 

definition of distressed homeowner that the initiative targeted. for example, some of the defendants 

included in the original statistics were involv<;:(l in loan origination schemes and other such schemes that 

did not specifically target and victimize distresSoo homC(>wnet"!l. As a result, the public aJUlouncement 

overstated the number of defendants that should have been includoo as part of the Distressed Homeowner 

Initiative, as well as the c01Tcsponding estimatoo loss amount and number of victims. 

Following this detaile<l review, the updlted numbers are: 107 criminal defendants were charged 

in l"iscal Year 20 12 in federal distressed homeowner prosecutions in U.S. Distric t Courtli across the 

COlU1try. TIlOse cases had an estimatoo 17,185 homeowner victims and an estimated total loss amount, 

including losses to homeowners and other victims of the fraud schemes, of mDre than S95 million. Tn 

addition, cases were tiled against a total of 128 civil defendants in fooeral oowts from caastto coast, with 

an estimated total loss amount 01'554 million and 19, 198 \~ctims. While al l of tim cases originally 

reported were part of our colloctive elTorts to ensure stability and fairness in our financial and housing 

markets, these updated numbers reflcctthe subset of cases targeted by the Fiscal Year 20 12 Distressed 

Homeowner Initiati\'e. Please be sure to update any online materials rostoo by your agency to reflect 

these changes. 

APPENDIX V
 

FEDERAL BUREAU OF INVESTIGATION MEMORANDUM
 

43
 
u.s. Department of Justice 

Office of the Deputy Attorney General 

February 21, 2014 

MEMORANDUM FOR MICHAEL E. HOROWITZ 

TNSPECTOR GENERAL 

U.S. DEPARTMENT OF 7 1CE 

FROM: James M. Cole .A 

Deputy Attorne;.6eneral 

SUBJECT: Response: Audit of the Department of Justice's 

Efforts to Addre,,-'i Mortgage Fraud 

We appreciUle the audit undertaken by the Department of Justice (OOJ or the 

"Department"), Office of the Inspector General (OIG) regarding efforts by the Department, 

particularly the Federal 8ureau of Investigation (fBi), U.S. Attorneys' Offices, Criminal 

Division, and Civil Division, as a part of the Attorney General's Financial Fraud Enforcement 

Task Force (ffETF), to address mortgage fraud generally belwccn fiscal ycars 2009 and 2011. 

As pan ofils work, DIG inquired into the policies and practices concerning how case data was 

collected and reported regarding mortgage fraud. The DIG report contains seven 

recommendUlions related to that inquiry. We agree with these recommendations, although we 

note here several points that deserve further emphasis_ 

APPENDIX VI 

DEPARTMENT OF JUSTICE RESPONSE TO THE DRAFT AUDIT 

REPORT 

44
 
Memorandum from the Deputy Anomey General Page 2 

Subject: Response: Audit of the Department of Justice's Efforts to Address Mortgage Fraud 

As an initial matter, the Department has focused successfully on mortgage fraud 

violations. As the FBI data in the audit report itself reflects, the number of mortgage fraud 

convictions more than doubled from FY 2009 to FY 2010, i.e., from 555 to 1,087 convictions, 

and then increased further in FY 2011 to I ,ll8 convictions. 

FBI Mortgage F~ud Statistics by Fiscal Year 

"'" 

" . 

.. . 

'"' . 

.. . 

o · 

,." M" Mn 

Further, and as the FBI data in the audit report also reflects, mortgage fraud indictments nearly 

doubled from 873 indictment in FY 2009 to 1,565 indictments in FY 2010, and then leveled off 

at 1,230 indictments in FY 2011. This set of statistics reflects a rapid mobilization of 

Department resources to combat mortgage fraud during this period, and provides strong 

indicators ofDOJ's success in investigating and prosecuting mortgage fraud. 

The Department also added significant infrastructure as a part of its mortgage fraud 

efforts. As a part of its audit, 010 visited five U.S. Attorneys' Offices and found that all five 

offices had an Assistant U.S. Anorney (AUSA) who was assigned to be that office's mortgage 

fraud coordinator. These coordinators play an important role in helping AUSAs stay updated on 

developments in mongage fraud enforcement, investigative techniques, and prosecutorial 

strategies, and they have expanded the ability ofDOJ to build and prosecute mortgage fraud 

cases. Similarly, the audit report also makes reference to the approximately 90 multi-agency task 

forces and working groups dedicated to mortgage fraud. These groups exist throughout the 

country and act as a resource multiplier. enabling a dedicated staff of AUSAs, FBI Special 

Agents, and investigators from other agencies to corrununicate and coordinate mortgage fraud 

efforts. 

45
 
Memorandum from the Deputy Attorney General Page 3 

Subject: Response: Audit of the Department of Justice's Efforts to Address Mortgage Fraud 

During the audit period, the Department also held specialized training programs in 

mortgage fraud. For example, in March 201 0, the FFETF's Mortgage Fraud Working Group 

brought together federal and state enforcement attorneys for a three-day training to cover the 

operation of mortgage fraud task forces, federal~state cooperation and coordination in combating 

mortgage fraud, civil tools, state tools, case studies, and discovery issues. This was the first 

training ofits kind and included approximately 130 attorneys. See First Year Report/or the 

Financial Fraud En/orcemem Task Force § 4.10 (2010), available at 

http: //www.stopfraud.gov/docslFFETF~Report-LR.pdf(''Fjrst Year Report}. Later in 2010, and 

again 2011, the Department held follow-up trainings and seminars covering mortgage fraud. 

On top of training and conferences, the Mortgage Fraud Working Group also held 

regional summits around the country during the audit period in Miami, Detroit, Phoenix, 

Columbus, Fresno, and Los Angeles. See First Year Report § 3.5. During those summits. the 

public came together to hear from law enforcement, victims, housing counselors, industry 

experts and others to discuss and assess mortgage fraud issues in that community. ld. The 

regional swnmits also included closed sessions with regional law enforcement authorities to 

discuss strategies, resources, and initiatives to successfully combat mortgage fraud. ld. 

In conducting its audit, OIG identified issues with the Department's data collection and 

reporting process, focusing in particular on the policies and practices surrounding the data cited 

in the Department's October 9, 2012 announcement associated with the Distressed Homeowner 

Initiative (DHI). On August 9, 2013, the Department released revised statistics to correct the 

numbers previously released. Indeed, when questions were raised regarding the correctness of 

the statistics, the FBI, the Executive Office ofO.S. Attorneys (EOUSA), and the U.S. Attorneys' 

Offices began working to detennine the source of the error and to determine the correct data. 

While it took some time to fully verify the set of data. we issued corrections approximately six 

months ago and took steps to modify press releases and other public statements to reflect the 

correct statistics. While the errors associated with the data in the initial DHI announcement were 

related to the unique nature of that effort, the Department has committed to putting robust 

measures in place to help ensure correct reporting offuture data in press releases and 

conferences. 

In any event, the OHI reporting does not detract from the successes that the Department 

achieved during the audit period of2009 to 2011 . Indeed, in addition to the high overall 

charging and conviction rates listed above, the Department has brought significant criminal and 

civil enforcement actions against company officials for conducting mortgage fraud resuJting in 

significant losses. For example, in the crimlnai enforcement context, the Department secured a 

conviction in 2011 against Lee Bentley Farkas, the former chainnan of a private mortgage 

lending company, Taylor, B'ean & Whitaker, for Farkas's role in a more than $2.9 billion fraud 

scheme that contributed to the failure of Colonial Bank, one of the 25 largest banks in the United 

46
 
Memorandum from the Deputy Attorney General Page 4 

Subject: Response: Audit of the Department of Justice's Efforts to Address Mortgage Fraud 

States in 2009. In the civil context, the Department and 49 state Attorneys General reached a 

$25 billion agreement with the nation's five largest mortgage servicers in February 2012 to 

address mortgage loan servicing and foreclosure abuses. This package of agreements, which was 

proposed as the result of investigative work in 2011, was the largest federal-state civil settlement 

ever obtained. Under the settlement, the mortgage servicers agreed to pay $5 billion in cash, and 

conunitted to provide $20 billion in consumer rcliefto struggling homeowners. The mortgage 

servicers also agreed to implement tough new servicing standards designed to protect consumers 

from future abuses. See also First Year Report, §§ 4.10-4.15 (providing additional criminal and 

civil enforcement examples). 

To address its concerns regarding data collection and reporting, OIG has made seven 

recommendations. We concur with each recommendation, and for ease of review, each 

reconunendation is followed by the Department's response. 

Recommendation No.1 to the Department of Justice. as the Chair of the Financial 

Enforcement Task Force: "Ensure that all agencies update online and other publicly available 

materials related to the Distressed Homeowner Initiative, acknowledge the corrections to the 

inaccurately reported statistics. and notify any key stakeholders of the changes." 

Response: Concur. The Department has conducted a review of all actions to date. and 

all components have updated or deleted any inaccurate infonnation regarding OHI. 

Given that the corrective actions necessary to resolve this reconunendation have been 

taken already. this recommendation should be closed. 

Recommendation No.2 to the Department of Justice, as the Chair ofthe Financial Fraud 

Enforcement Task Force: "Revisit the results of Operation Stolen Dreams to determine if 

corrective action on the publicly reported results is necessary." 

Response: Concur. In conjunction with the FBI, the Department will review the 

methodology used to collect the results of Operation Stolen Dreams, which were released 

publicly to detennine if corre<:tive action is necessary. If corrective action is necessary, 

the Department will work with the FBI to ensure any public records that contain material 

discrepancies are corrected. 

Recommendation No.3 to the Department of Justice: "Implement a methodology for 

properly soliciting, collecting, and reviewing infonnation before publicly reporting results." 

RespoDse: Concur. The Department will issue and implement a set of best practices for 

soliciting, collecting, and reviewing infonnation before publicly reporting results. 

47
 
Memorandwn from the Deputy Attorney General Page 5 

Subject: Response: Audit of the Department of Justice's Efforts to Address Mortgage Fraud . 

Recommendation No.4 to the FBI: "Revisit its existing guidance on initiating a mortgage 

fraud UCO [undercover operations] and ensure that this training reaches all levels within the 

field." 

Response: Concur. The FBI will review its existing guidance and ensure necessary 

training reaches all levels of investigative personnel responsible for mortgage fraud 

investigations. 

Recommendation No.5 to the Department of Justice and EOUSA: "Direct all USAOs to 

periodically assess any monetary thresholds applied to mortgage fraud cases 10 ensure they are 

reasonably based upon the threat within their respective jurisdictions and adequately allow for 

non-monetary harms that result from mortgage fraud schemes, as well as ensure that law 

enforcement agencies in their respective districts have a clear understanding of any limiting 

factors being applied to such cases." 

Response: Concur. The Department has already directed USAOs to assess prosecution 

thresholds for both violent and white collar crime, consistent with the Attorney General's 

Memorandum on Federal Prosecution Priorities, dated August 12,2013. As a part of 

implementing the Attorney General's policy, we will also assess any money thresholds 

applied to mortgage fraud cases. 

Recommendation No.6 to the Department of Justice and EOUSA: "Develop a method to 

capture additional data that will allow DOJ to better Wlderstand the results of its efforts in 

investigating and prosecuting mortgage fraud and to identify the position of mortgage fraud 

defendants within an organization." 

Response: Concur. While the Department already has a good understanding of the 

results of its efforts in addressing mortgage fraud, the Department will continue to 

evaluate and reassess its existing data collection mechanisms for allowing the 

Department to bener Wlderstand the results of its efforts in investigating and prosecuting 

mortgage fraud and to identify the position of mortgage fraud defendants within an 

organization. Indeed, EOUSA has already begun considering the addition of a LIONS 

field for "occupation" in financial fraud and mortgage fraud cases. 

Recommendation No.7 to the Department of Justice and EOUSA: "Develop a method to 

readily identify mortgage fraud criminal and civil enforcement efforts for reporting purposes." 

Response: Concur. The Department will review existing data collection procedures to 

improve upon the current system of identifying mortgage fraud cases for reporting 

purposes. We note that the Department already has methods to readily identify mortgage 

fraud criminal and civil enforcement efforts for reporting purposes, including LIONS in 

48
 
Memorandwn from the Deputy Attorney General Page 6 

Subject: Response: Audit of the Department of Justice's Efforts to Address Mortgage Fraud 

the U.s. Attorneys' Offices and the Automated Case Tracking System (ACTS) in the 

Criminal Division. Indeed, ACTS contains a separate program category known as "MF' 

to target mortgage fraud cases being investigated and prosecuted in the Criminal 

Division, and LIONS also has a code associated with mortgage fraud cases. With respect 

to civil cases, as the audit report acknowledges, the Department's Civil Division already 

tracks civil mortgage fraud cases nationwide. Nevertheless, the Department will aim to 

improve upon its current system by considering the implementation of additional 

procedures., including, for example, reminders to prosecutors to promptly input and check 

nwnbers for mortgage fraud cases. 

cc: Tony West, Associate Attorney General 

Mark Guiliano, Federal Bureau of Investigation 

Mythili Raman. Criminal Division 

Stuart Delery, Civil Division 

Brian Fallon, Office of Public Affairs 

Marshall Jarrett. Executive Office for United States Attorneys 

Benjamin Wagner, U.S. Attorney's Office for the Eastern District ofCaliforrua 

49
 
 

 

 

 

 

 

 

APPENDIX VII 

OFFICE OF THE INSPECTOR GENERAL ANALYSIS AND SUMMARY 

OF ACTIONS NECESSARY TO CLOSE THE REPORT 

The OIG provided a draft of this audit report to the Department of Justice 

(Department). The Department’s response is incorporated in Appendix VI of this 

final report. The following provides the OIG analysis of the response and summary 

of actions necessary to close the report. 

Recommendation: 

1.	 Ensure that all agencies update online and other publicly available 

materials related to the Distressed Homeowner Initiative, acknowledge 

the corrections to the inaccurately reported statistics, and notify any 

key stakeholders of the changes. 

Resolved. The Department concurred with our recommendation. In its 

response, the Department stated it conducted a review of all actions to date, 

and all components have updated or deleted any inaccurate information 

regarding DHI. Based on this response the Department believes that this 

recommendation should be closed. 

This recommendation can be closed when we receive evidence that all 

Department components have updated their online and publically available 

materials related to the Distressed Homeowners Initiative. 

2.	 Revisit the results of Operation Stolen Dreams to determine if corrective 

action on the publicly reported results is necessary. 

Resolved. The Department concurred with our recommendation. In its 

response, the Department stated that in conjunction with the FBI, it will review 

the methodology used to collect the results of Operation Stolen Dreams, which 

were released publicly, to determine if corrective action is necessary. If 

corrective action is necessary, the Department stated that it will work with the 

FBI to ensure any public records that contain material discrepancies are 

corrected. 

This recommendation can be closed when we receive evidence that the 

Department and the FBI have reviewed the results of Operation Stolen Dreams 

and confirmed whether material discrepancies were found. If material 

discrepancies are found, the recommendation can be closed when the necessary 

public records are corrected. 

3.	 Implement a methodology for properly soliciting, collecting, and 

reviewing information before publicly reporting results. 

Resolved. The Department concurred with our recommendation. In its 

response, the Department stated that it will issue and implement a set of best 

50
 
 

 

 

 

 

 

practices for soliciting, collecting, and reviewing information before publicly 

reporting results. 

This recommendation can be closed when we receive evidence that the
 

Department issued and implemented a set of best practices for soliciting,
 

collecting, and reviewing information before publicly reporting results.
 

4.	 Revisit its existing guidance on initiating a mortgage fraud UCO and 

ensure that this training reaches all levels within the field. 

Resolved. The Department concurred with our recommendation. In its 

response, the Department stated that the FBI will review its existing guidance 

and ensure necessary training reaches all levels of investigative personnel 

responsible for mortgage fraud investigations. 

This recommendation can be closed when we receive evidence that the FBI 

reviewed its existing guidance and ensured that necessary training reached all 

levels of investigative personnel responsible for mortgage fraud investigations. 

5.	 Direct all USAOs to periodically assess any monetary thresholds applied 

to mortgage fraud cases to ensure they are reasonably based upon the 

threat within their respective jurisdictions and adequately allow for 

non-monetary harms that result from mortgage fraud schemes, as well 

as ensure that law enforcement agencies in their respective districts 

have a clear understanding of any limiting factors being applied to such 

cases. 

Resolved. The Department concurred with our recommendation. In its 

response, the Department stated that it has directed USAOs to assess 

prosecution thresholds for both violent and white collar crime, consistent with 

the Attorney General's Memorandum on Federal Prosecution Priorities, dated 

August 12, 2013. Also, as a part of implementing the Attorney General's policy, 

USAOs will assess any money thresholds applied to mortgage fraud cases. 

This recommendation can be closed when we receive evidence that monetary 

thresholds applied to mortgage fraud cases were assessed as part of the 

Department’s implementation of the Attorney General’s Memorandum on Federal 

Prosecution Priorities, dated August 12, 2013. 

6.	 Develop a method to capture additional data that will allow DOJ to 

better understand the results of its efforts in investigating and 

prosecuting mortgage fraud and to identify the position of mortgage 

fraud defendants within an organization. 

Resolved. The Department concurred with our recommendation. In its 

response, the Department stated that it will evaluate and reassess its existing 

data collection mechanisms for allowing the Department to better understand 

51
 
 

 

 

the results of its efforts in investigating and prosecuting mortgage fraud and to 

identify the position of mortgage fraud defendants within an organization. 

In addition to an evaluation and reassessment of its existing data collection 

mechanisms related to the investigation and prosecution of mortgage fraud 

cases, this recommendation can be closed when we receive evidence that the 

Department has developed a method to capture additional data related to 

identifying the position of mortgage fraud defendants within an organization. 

7.	 Develop a method to readily identify mortgage fraud criminal and civil 

enforcement efforts for reporting purposes. 

Resolved. The Department concurred with our recommendation. In its 

response, the Department stated that it will review existing data collection 

procedures to improve upon the current system of identifying mortgage fraud 

cases for reporting purposes and will aim to improve upon its current system by 

considering the implementation of additional procedures, including, for example, 

reminders to prosecutors to promptly input and check numbers for mortgage 

fraud cases. 

This recommendation can be closed when we receive evidence that the 

Department has developed a method to readily identify mortgage fraud criminal 

and civil enforcement efforts for reporting purposes. 

52