	Introduction

Recent breakdowns in U.S. financial markets have prompted congressional interest in criminal provisions available to federal prosecutors in cases involving mortgages. Because the role of weak mortgage loans in the economic downturn involves complex and systemic factors, criminal prosecution will necessarily be only one part of a broader governmental response. Thus, regulatory reform will likely be an important response to the downturn. This report focuses on federal criminal provisions relevant to prosecutions of mortgage fraud and related criminal actions. However, several federal criminal provisions – most notably mail and wire fraud, financial institutions fraud, and a number of crimes involving false statements – may encompass various fraudulent activities at issue in mortgage fraud cases. Other statutes, such as securities fraud provisions, may apply to fraudulent transactions within the secondary mortgage market. Finally, some provisions criminalize violations of federal regulations, creating an important connection between regulatory reforms and the scope of authorities for federal criminal liability. The Fraud Enforcement and Recovery Act of 2009 (FERA, S. 386 ), versions of which have been passed by the Senate and House, would, in addition to authorizing funding for prosecution efforts and other measures, expand federal criminal law authorities for combating mortgage fraud and related crimes. Fraud for Housing

Fraud for housing is committed by an individual, usually a borrower, for the purpose of fraudulently obtaining (or maintaining ownership of) a property. S. 386

The role of mortgage fraud in the economic downturn has prompted concerns regarding the adequacy of existing federal criminal statutes. In particular, noting the large role that private (i.e., non-federally-chartered) mortgage lending businesses played in the residential mortgage market during the years preceding the recent financial crisis, some perceive a need for an expansion of federal criminal liability to encompass actions perpetrated to defraud such institutions. The amendments most relevant to mortgage fraud include: (1) expanding the definition of "financial institution," which applies in the context of institutions fraud and other sections, to include a "mortgage lending business," defined as "an organization which finances or refinances any debt secured by an interest in real estate ..."; (2) adding "mortgage lending business whose activities affect interstate or foreign commerce, or any person or entity that makes ... a federally related mortgage loan" to the list of entities to which the crime of false statement on a loan or credit application applies; (3) expanding the crime of major fraud against the United States to apply to grants, loans, subsidies, insurance, and other categories, rather than only contracts received from the government; and (4) expanding the definition of "proceeds" for money laundering to include gross receipts (as discussed infra , courts currently interpret the definition as encompassing only profits and not gross receipts); and (5) amending the federal securities fraud statute to extend to commodities, including derivatives comprised of mortgage-backed securities. In addition, federal money laundering, conspiracy, and Racketeer Influenced and Corrupt Organizations provisions may provide secondary bases for federal criminal liability in some situations. Crimes Involving False Statements

Several federal statutes impose criminal liability for false statements. A final set of provisions impose criminal penalties for failing to comply with federal agencies' investigations and enforcement actions.
Although criminal prosecutions will likely be only one part of a broader governmental response to the recent financial crisis, the perceived role of fraudulent activity in the downturn, and of mortgage fraud in particular, has spurred interest in the criminal provisions available to federal prosecutors. This report analyzes statutory sources of federal criminal liability for fraudulent actions taken in the primary mortgage market – i.e., fraud committed by borrowers, brokers, lenders, or others during the mortgage origination process. It also discusses some statutes implicated by fraudulent actions in the secondary mortgage market.
In general, federal regulation of financial institutions is handled by numerous regulatory agencies. However, criminal liability applies in instances involving criminal intent. Mortgage-related criminal schemes range from fraud committed by an individual borrower for the purpose of obtaining a loan to fraud-for-profit schemes that involve institutions or industry insiders. In general, federal criminal enforcement efforts have focused on schemes involving industry insiders.
Although there is no one federal crime of "mortgage fraud," many federal statutes may impose criminal liability for mortgage fraud and related schemes. Relevant federal provisions include, among others, those criminalizing mail and wire fraud, financial institutions fraud, and false statements, together with those that impose criminal penalties for violations of federal regulations. Money laundering, conspiracy, and racketeering provisions may provide additional bases for federal criminal liability. In addition, to a limited extent, securities fraud and corporate fraud provisions may apply to fraudulent actions taken in the secondary mortgage market.
Looking forward, a debate has emerged regarding the adequacy of existing federal criminal provisions. Some have suggested that existing statutory authorities are sufficiently broad and that regulatory reforms are the most appropriate response. Others have argued that several key federal criminal statutes need to be expanded because they do not cover all mortgage companies. The Fraud Enforcement and Recovery Act of 2009 (FERA, S. 386), versions of which have been passed by the Senate and House, would expand the scope of existing criminal provisions, for example by expanding the definition of "financial institution" under U.S. criminal law to include mortgage lending businesses.