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California Forms Mortgage Fraud Task Force

California Attorney General Kamala Harris has announced the state is creating a special 25-man task force to target cases of mortgage fraud, everything from small companies that prey on troubled homeowners to corporations that bundle risky mortgages into securities and sell them as safe investments.  The team will consist of 17 attorneys and eight special agents from the state's Department of Justice, and will focus on three major areas.

The first of these areas is corporate fraud, to include the practice of bundling risky home loans into securities for sale as supposedly safe investments.  Harris said that a number of cases would be prosecuted under the state's False Claims Act, where the securities are sold to the state or pension funds.  The False Claims Act, similar to the federal version, was enacted to help prevent businesses or individuals from defrauding the state.

The second area involves lawyers, consultants or firms who charged troubled homeowners a fee to help prevent a foreclosure, then did nothing to help their clients.  The practice has been prevalent over the last few years, as the state's millions of troubled borrowers sought ways to save their homes.

The third area the task force will focus is that of fraudulent lending practices like deceptive marketing, failure to fully disclose loan terms, and qualifying people for loans who had no chance of being able to afford the terms.

Harris explained in a recent interview that mortgage fraud was at the heart of the housing crash and continues to drag on the state's economy, driving unemployment higher, and dragging down property values and state revenue.  “We are looking at a situation of up to $640 billion in wealth having been lost because of this wave of foreclosures that has hit the state,” Harris said, referring to the decline in homeowner equity.  “There is a direct connection (between mortgage) fraud and the issue that we are challenged with in terms of our state budget crisis."

California's creation of the Mortgage Fraud Strike Force comes as other states also seek penalties against the lending industry.  New York Attorney General Eric Schneiderman has asked for records from three of the nation's largest lenders as part of his ongoing investigation into the mortgage collapse, and a broad-based probe by all 50 state Attorneys General continues to dissect the foreclosure practices of the nation's largest mortgage servicers.