House clears bill to crack down on financial fraud

McClatchy Newspapers

WASHINGTON — The House of Representatives passed legislation Monday that would give the federal government strong new tools to pursue financial fraud, clearing it for President Barack Obama to sign into law.

The bill, which the Obama administration strongly supports, also would create a 10-member commission to study the causes of last year’s financial meltdown. The House passed it by 338-52. The Senate overwhelmingly approved the measure last month.

“This bill is a major step toward holding accountable those who have caused so much damage to our economy,” said Senate Majority Leader Harry Reid, D-Nev.

The measure expands federal fraud laws to cover mortgage lenders the federal government doesn’t regulate. It also would expand those laws to cover money spent under the $700 billion Troubled Asset Relief Program, which helps ailing financial institutions, and this year’s $787 billion economic-stimulus plan.

Not everyone was convinced the bill is the sweeping antidote its backers claim. Skeptics suggested the measure is little more than a way for Congress to make itself feel good after years of failing to watch the financial services industry closely.

“I would tell you the biggest person or group of people responsible for the problem we face today is the Congress,” said Sen. Tom Coburn, R-Okla., a Senate Judiciary Committee member. “We failed to do our job on oversight.”

Brian Walsh, a senior legal research fellow at Washington’s Heritage Foundation, a conservative research group, argued there are already plenty of laws for combating fraud — notably wire and mail fraud statutes — and in many cases it’s up to state and local enforcement agencies to go after suspicious behavior.

“This bill is a knee-jerk congressional response,” Walsh said.

However, members of Congress, faced with constituent ire over the financial crisis, offered little resistance to the legislation.

“This bill is a deterrent,” argued Sen. Ted Kaufman, D-Del. “Prosecuting white-collar crime today sends a message to those who would be tempted to cheat and defraud again.”

The Senate Judiciary Committee report on the measure found that “as banks and private mortgage companies relaxed their standards for loans, approving ever riskier mortgages with less and less due diligence, they created an environment that invited fraud.”

It said the housing market became dominated by private mortgage brokers and lending businesses that weren’t subject to the same scrutiny that traditional financial institutions were.

The Treasury Department has reported that in the last six years, suspicious-activity reports alleging mortgage fraud increased nearly tenfold, to about 62,000 last year.

Criminal mortgage-fraud investigations by the FBI also have mushroomed, and officials there are overwhelmed.