Criminal Prosecutions in the Mortgage Mess

Given the scope of the mortgage mess, it is hardly surprising that some companies are now being accused of having played funny. Funny, in this case, means illegally! Consider the following cases.

Baltimore is where we will start. The target is Wells Fargo. The bank is being sued for something very nasty by the city. It is alleged that Wells Fargo discriminated against African Americans by assigning them higher mortgage loan interest rates than whites in the city. This, of course, violates a number of federal and state laws. If proven, Wells Fargo has a major problem.

New York has a recent history of really taking down corporate criminals. The state is leading the charge again when it comes to the mortgage mess. The state attorney general, Andrew Cuomo, has gone after Washington Mutual for colluding with an appraisal company to over state the value on homes. Mr. Cuomo is not asserting that homeowners were bilked, but that investors were.

Ohio is also getting in on the game. The attorney general for the state, Marc Dann, has sued no less than Freddie Mac. He is claiming that the investments by Freddie Mac in the subprime loan business actually defrauded the state pension which invests in the company. This one sounds like it is going to be difficult to prove, but keep an eye on it.

The City of Cleveland has also had enough. It is suing no less than 21 banks for a variety of reason because the city now has so many abandoned and foreclosed upon properties that overall property values have dropped dramatically. More importantly from the perspective of the city, this has resulted in the loss of property taxes.

So, where can we expect all of this to go? Well, the blame game is going to get ugly and get ugly fast. A ton of money was lost and that will not go away quietly. Oddly, the government efforts will probably best be pursued from the investors’ angle. It is far easier to prove that mutual funds, investment banks and the like failed to meet their duties to use investors’ money wisely than it is to prove fraud and other intentional acts. The final result will have its villains, but it will really do nothing to help the current market.

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