FBI Ranked Mortgage Fraud As Lowest Criminal Threat After Crisis: Justice Department

In this Monday, Jan. 13, 2014, photo, a  sold sign is placed on a homesite in the Grace Manor townhouse development in Robins
In this Monday, Jan. 13, 2014, photo, a sold sign is placed on a homesite in the Grace Manor townhouse development in Robinson Township, Pa. Freddie Mac, the mortgage company, releases weekly mortgage rates, on Thursday, Jan. 16, 2014.(AP Photo/Gene J. Puskar)

By Aruna Viswanatha

WASHINGTON, March 13 (Reuters) - The FBI ranked mortgage fraud as its lowest criminal threat after the height of the financial crisis, even though the U.S. Justice Department had said that investigating mortgage fraud was to be a priority, a report by a department watchdog said on Thursday.

In addition, although federal investigators received significant additional funding from Congress to pursue mortgage fraud cases, the FBI did not always use the funds only for mortgage fraud, the report by the Department of Justice's inspector general said. The FBI is part of the Justice Department.

"The FBI in adding new staff did not always use these new positions to exclusively investigate mortgage fraud," inspector general Michael Horowitz said in the report.

The report also said that the FBI placed mortgage fraud in its lowest criminal category.

In recent years the government has been accused of not doing enough to go after the kind of conduct that fueled the financial crisis, including mortgage fraud.

The FBI received $196 million in funding to investigate mortgage fraud activities between the 2009 and 2011 fiscal years, but in 2011 the number of agents investigating such cases and the number of open investigations decreased, the inspector general said.

In response to the report, Justice Department spokeswoman Ellen Canale said the number of mortgage fraud indictments nearly doubled and the number of convictions rose by more than 100 percent between 2009 and 2011, the two years the inspector general examined.

"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," Canale said.

The inspector general also said he found "significant deficiencies" in the Department of Justice's ability to accurately report its mortgage fraud efforts.

The agency mistakenly inflated its results in mortgage fraud prosecutions at an October 2012 press conference by some 90 percent, Horowitz said.

While the Justice Department said at the press conference it had prosecuted crimes targeting homeowners that had resulted in more than $1 billion in losses, it was not until 10 months later that it updated the information to reflect the accurate number of losses - only $91 million, Horowitz said.

When the information was updated, the number of such cases also dramatically dropped, from 530 to 107. The Justice Department has since corrected the statistics in the related press releases.

In the report, Horowitz also said he found mortgage fraud to either be a low priority or not listed as a priority for multiple FBI field offices that he visited, including in New York, Miami, Los Angeles and Baltimore.

In response to a draft of the report, Deputy Attorney General James Cole said the Department of Justice would aim to improve mortgage-related data collection and reporting.