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The Concept and Federal Crime of Mortgage Fraud
American Criminal Law Review  (IF3.455),  Pub Date : 2020-12-01, DOI:
Matthew A. Edwards

The impact of mortgage fraud on the United States financial and economic system during the past twenty years has been severe and enduring. Nothing illustrates this fact better than the 2007–2008 financial crisis. Scholars and policymakers are convinced that the explosion in so-called liar’s loans, which were securitized and sold to investors, played a key role in either causing or exacerbating the housing bubble and financial meltdown that led to the Great Recession. Unfortunately, efforts to understand and address the problem of mortgage fraud are undermined by fundamental confusion regarding the nature of mortgage fraud as a federal criminal offense. Some of this confusion is due to the fact that there is no single federal mortgage fraud statute. Thus, almost every legal actor relies on the FBI’s definition of mortgage fraud. Surprisingly, however, the influential FBI definition is plainly inconsistent in key respects with elements of the federal criminal statutes most often used to punish mortgage fraud. We should be concerned that the FBI, which investigates mortgage fraud, cannot get the basic definition of the crime of mortgage fraud right—and that scholars and commentators uncritically accept and use that problematic definition. This Article provides scholars and lawmakers with an understanding of the meaning of mortgage fraud as a federal crime. In particular, it makes three practical contributions to public policy discourse regarding mortgage fraud. First, this Article distinguishes mortgage origination fraud from securities fraud involving mortgage-backed securities and other financial crimes related to the housing market. Second, this Article urges care in the use of the term “fraud.” Not every misstatement in a mortgage application is fraud. Scholars who write about fraudulent mortgage loans must acknowledge that loan documents cannot have mens rea and that not all mortgage application falsehoods warrant the imposition of criminal liability. Most importantly, this Article demonstrates why scholars and policymakers should take great care before using the FBI’s deeply flawed definition of mortgage fraud.