The new Financial Crimes Unit announced by President Barack Obama during Tuesday’s State of the Union address will have the power to investigate mortgage fraud going back at least 10 years, according to senior officials at the Department of Justice. Click below to read the rest of the story.
The new unit, however, could jeopardize the negotiations now taking place between five of the country’s largest banks, the states’ attorneys general and the Obama administration over mortgage fraud and wrongful foreclosures, some observers say.
In a conference call with reporters on Thursday afternoon, senior officials at the Department of Justice fleshed out details of the new unit. The new unit will focus on both the origination and securitization (or packaging) of mortgage loans. The unit will also investigate loans that were sold to, and insured by, government agencies, said Justice Department officials.
The new unit “has a pretty good chance of derailing it,” JPMorgan Chase CEO Jamie Dimon told CNBC on Thursday, referring to the settlement. JPMorgan is one of the five banks involved in those negotiations. It is likely that under the settlement investigators could pursue cases only from as early as January 2008, said a source close to the negotiations who is prohibited from speaking on the record.
The banks are interested in the settlement because it will protect them from future liability, according to one industry insider who agreed to speak on the condition of anonymity. If they agree to spend $25 billion to guarantee such protection, then find themselves facing the exact same cases with the new investigative unit, they no longer have an incentive to bother with the settlement.
Senior officials at the Department of Justice were quick to emphasize that the fate of the settlement talks is unrelated to the new unit. “We have certainly heard criticisms that the settlement would give immunity for all [the mortgage-related misconduct], but that’s simply not true …This [unit] is addressing a very different problem than the servicing settlement,” said one official.
Some view the new unit as a response to the growing criticism that the Obama administration has yet to seriously pursue the big banks and high-level executives responsible for the housing crash that led to the worst financial crisis since the Depression. “This new unit will hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans,” Obama said on Tuesday.
