The U.S. Department of Justice (DOJ) has treated mortgage fraud cases as a low priority, even though President Barack Obama promised to crack down on such crimes in the wake of the 2008 financial crisis.

DOJ also greatly exaggerated its success in prosecuting mortgage fraud, according to an investigation by the department’s Office of the Inspector General (IG).

Attorney General Eric Holder Jr. declared four years ago that mortgage fraud crimes had “reached crisis proportions,” and promised his agency would be “fighting back” in response.

But the IG’s report (pdf) shows the Federal Bureau of Investigation (FBI) put mortgage fraud at the bottom of its criminal priority list—after receiving extra funding ($196 million from the 2009 to 2011) to address this problem. In some major cities, mortgage fraud wasn’t even on the FBI’s radar as any kind of a priority.

“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,” the report states.

A “significant backlog of unaddressed and pending mortgage fraud investigations” was disclosed by supervisors interviewed by IG investigators. In fact, important fraud cases were completely shut down by the FBI, not due to a lack of resources, but because the Bureau’s resources were diverted to other operations that were given higher priority, according to the report.

Just as disturbing was the fact that Justice inflated its numbers to make it appear prosecutors were doing more than they actually were.

In 2012, Holder announced his lawyers had charged 530 people during the previous year with mortgage fraud that had cost homeowners more than $1 billion.

In truth, the numbers were more like 107 people charged in cases totaling only $95 million, the IG found. Even after the figures were proven to be incorrect, the DOJ continued to cite the false statistics for nearly a year.

“The inspector general’s report sheds light on what looks like an attempt by the Justice Department to pull the wool over the public’s eyes with respect to its efforts to go after the wrongdoers involved in mortgage fraud,” Senator Charles Grassley (R-Iowa), the ranking member on the Senate Judiciary Committee, said in a statement. “According to the inspector general, the department wasted time cooking the numbers about the cases it pursued, when it should have been prosecuting cases.”

The IG offered numerous recommendations to the department, most of which involved fixes to DOJ’s recordkeeping system that had produced such inaccurate figures.

The Justice Department objected to the IG’s conclusions, citing prosecutors doubling the number of mortgage fraud indictments from 2009 to 2011.

“The facts regarding the department’s work on mortgage fraud tell a much different story than this report,” Ellen Canale, a department spokeswoman, told The New York Times. “As the report itself notes, even at a time of constrained budget resources, the department has dedicated significant manpower and funding to combating mortgage fraud.”

Mortgage fraud—through falsification of documents by lenders and brokers—was one of the catalysts of the 2008 financial collapse. Fraud involving mortgage-backed securities, said to be larger in scope and also a contributing factor to the collapse, is considered by the FBI to be securities fraud and was not addressed by the IG report.

-Noel Brinkerhoff

To Learn More:

U.S. Criticized for Lack of Action on Mortgage Fraud (by Matt Apuzzo, New York Times)

Mortgage Fraud Efforts Fell Short, Justice Department Inspector General Concludes (by Jeffrey Benzing, Main Justice)

Audit of the Department of Justice’s Efforts to Address Mortgage Fraud (U.S. Department of Justice, Inspector General) (pdf)

Justice Dept. Sues Bank of America over Prime Mortgage Fraud (by Noel Brinkerhoff, AllGov)

Big Banks Slither out of Mortgage Fraud Review with Minor Costs (by Noel Brinkerhoff, AllGov)