DOJ Prepares Mortgage Fraud Cases Against More Banks

According to the Wall Street Journal, the U.S. Department of Justice and state officials are readying more mortgage fraud cases against up to nine banks, with resolutions against Morgan Stanley (MS) and Goldman Sachs Group (GS) possibly finalized as early as later this month. Most negotiations are reportedly in the earlier stages and could go on for months.

The cases are over residential mortgage-backed securities that fell in value during the economic crisis. Individual securities cases are expected rather than a collective agreement. Other banks that are expected to settle include Credit Suisse Group AG (CS), Barclays PLC (BARC), HSBC Holdings PLC, Deutsche Bank AG (DB), UBS AG (UBS), Royal Bank of Scotland Group PLC (RBS), and Wells Fargo & Co. (WFC).Settlements could range in size from a few hundred million dollars to up to $3 billion depending on the extent of misconduct allegedly involved.

Also likely to be involved least some of the RMBS cases are the attorneys general of Illinois, Massachusetts, New York, and other states that also took part in the earlier rounds of RMBS fraud cases against banks.

In other mortgage fraud news, a jury found Abacus Federal Savings Bank not guilty of charges involving allegedly fraudulent mortgages sales, including mortgage fraud, falsifying records, grand larceny, and conspiracy. Two Abacus executives were found not guilty of 80 counts that had been filed against them. However, eight people from the bank’s loan department pled guilty to the charges filed against them.

The case involved the bank’s sale of hundreds of millions of dollars worth of allegedly bad loans to Fannie Mae between ’05 and ’10. Prosecutors contend that the faulty loans misrepresented the credit employment, income, and other information of applicants.

According to Reuters, Abacus is thought to be the only bank to have gone to criminal trial in this country over mortgage fraud charges related to the 2008 economic crisis. The banks loans, however, did not have a high default rate and are still performing. Borrowers are continuing to issue monthly mortgage payments.

While Abacus claims the wrong bank was tried, a spokesperson from the Manhattan District Attorney’s office pointed to the employees’ guilty pleas and said that in the wake of the prosecution and enhanced supervision that has resulted, the alleged fraud has definitely concluded.

Abacus bank acquitted of all charges in N.Y. mortgage fraud trial, Reuters, June 4, 2015

SEC Settles With Ex-Freddie Mac Executives Over Allegations They Mislead Investors Over Mortgage Risks, Institutional Investor Securities Fraud, April 15, 2015