Senator Patrick Leahy (D-VT) and Senator Chuck Grassley (R-Iowa) introduced legislation Thursday to provide the Federal Government with more tools to investigate and prosecute financial fraud. the Fraud Enforcement and Recovery Act makes necessary changes to federal criminal laws, including criminal fraud, securities law, and money laundering laws, increases the funding available to the federal law enforcement agencies to combat mortgage fraud and predatory lending, and also revises the False Claims Act to ensure that the government can recover taxpayer dollars lost to fraud and abuse.
A excerpt from the bill is included below. The entire bill can be looked up as Fraud Enforcement and Recovery Act of 2009 SB. 386.
Sec. 2(a) and 2(b). Definition of Financial Institution Expanded to Include Mortgage Lending Businesses and Mortgage Brokers
At the height of the subprime lending era, independent mortgage companies – those that are not depository institutions or their subsidiaries or holding company affiliates – made nearly half of the higher-priced, first-lien mortgages in America. The loans originated by these private mortgage companies were not generally covered by current federal fraud statutes, such as bank fraud and bank bribery statutes. As a result, there’s a need to update the federal fraud statutes by expanding the definition of “federal institution” to include mortgage lending businesses.
This section amends the definition in Title 18 for a “financial institution” to include a “mortgage lending business,” which is defined as “an organization . . . which finances or refinances any debt secured by an interest in real estate, including private mortgage companies and any subsidiaries” whose activities affect interstate or foreign commerce. The definition also includes “any person or entity that makes in whole or in part a federally-regulated mortgage loan as defined in 12 U.S.C. § 2602(1).”
These new definitions for “financial institution” and “mortgage lending business” (18 U.S.C. §§ 20, 27) will ensure that private mortgage brokers and companies are held fully accountable under federal fraud laws, particularly where they are dealing in federally-regulated or federally-insured mortgages. For example, the bank fraud statute, 18 U.S.C. § 1344, prohibits defrauding “a financial institution,” and the amendment to this definition would extend the bank fraud statute beyond traditional banks and financial institutions to private mortgage companies. This definition of “financial institution” would also apply to the following criminal provisions: 18 U.S.C. § 215 (financial institution bribery); 18 U.S.C. § 225 (continuing financial crimes enterprise); 18 U.S.C. § 1005 (false statement/entry/record for financial institution); and 18 U.S.C. § 1344 (bank/financial institution fraud). The new definition would also provide for enhanced penalties for mail and wire fraud affecting a financial institution, including a mortgage lending business, pursuant to 18 U.S.C. §§ 1341, 1343.
The recent financial crisis has demonstrated how fraudulent mortgages can affect the health of the banking system and the overall economy. Those who engage in frauds on mortgage lending businesses must be held to the same standards as traditional financial institutions, given the impact of their businesses on federally-insured and federally-regulated institutions.
Expanding the term “financial institution” to include mortgage lending businesses will also strengthen penalties for mortgage frauds and the civil forfeiture in mortgage fraud cases. It would also extend the statute of limitations in investigations of mortgage fraud cases to be consistent with bank fraud investigations.
This definition of “financial institution” would not apply to the Suspicious Activity Reports (SARs) that banks and other financial institutions are required to file, as “financial institution” is defined separately under the Bank Secrecy Act, 31 U.S.C. § 5312(a)(2).
Sec. 2(c). False Statements and Appraisals by Mortgage Brokers and Agents in Loan Applications
This section would amend the false statement in mortgage application statute (18 U.S.C. § 1014) to make it a crime to make a materially false statement or to willfully overvalue a property in order to influence any action by a mortgage lending business. The current offense only applies to federal agencies, banks, and credit associations and does not extend to private mortgage lending businesses, even if they are handling federally-regulated or federally-insured mortgages. Similar to expanding the definition of “federal institution” in Sections 2(a) and 2(b), this provision would ensure that private mortgage brokers and companies are held fully accountable under this federal fraud provision. This is a particularly important offense as it specifically relates to false appraisal fraud, which has been a particularly problematic type of mortgage fraud during the recent financial crisis.
Sec. 2(d). Major Fraud Against the Government Amended to Include Economic Relief and Troubled Asset Relief Program Funds
This section would amend the federal major fraud statute (18 U.S.C. § 1031) to include “any grant, contract, subcontract, subsidy, loan, guarantee, insurance or other form of Federal assistance, including through the Troubled Assets Relief Program, an economic stimulus, recovery or rescue plan provided by the Government, or the Government’s purchase of any preferred stock in a company.” This amendment will make sure that federal prosecutors have jurisdiction to use one of their most potent fraud statutes to protect the government assistance provided during this most recent economic crisis, including money from the TARP and circumstances where the government purchased preferred stock in companies to provide economic relief. These amendments, however, only apply to major frauds against the government, where the value of the contract or services is more than $1,000,000.
