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Community Banks Faces Rare Criminal Charges for Mortgage Meltdown

June 1st, 2012 · No Comments · Mortgages

by Staff

In a surprisingly rare development to come out of the mortgage meltdown, one of the banks – and some of its employees – allegedly responsible for illegal fraudulent activity are facing criminal charges. (What a concept!) Yesterday, prosecutors in New York announced the indictment of community bank Abacus Federal Savings Bank and 19 of its employees.

Like other banks involved in the mortgage meltdown, Abacus Federal is accused of knowingly falsifying documents so as to approve loans for people who would not normally have qualified. The specific allegations against Abacus Federal include:

  • Loan processors determining just how much money specific borrowers would need t make in order to qualify
  • Loan officers coaching borrowers in fudging on the facts, including how much money they make
  • Underwriters pushing loans through that they new were based on fraudulent information

Again, these are not allegations unique to Abacus Federal, which begs the question, why are they facing criminal charges – of mortgage fraud and grand larceny – while the vast majority of banks involved are not? Abacus Federal evidently asked the same thing and the gist of it is this: Their activity was seen as particularly systematic and frequent, at least in comparison to other banks, including the big banks whose role in the market meltdown I’ve blogged about rather extensively.

As you may recall, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial struck a deal with 49 states and the federal government. They agreed to pay a total of $5 billion for illegal lending and foreclosure practices that led to the housing market crisis. The specifics of that deal include:

1) Reducing more than a million existing mortgages by as much $20,000

2) Sending checks of up to $2,000 to as many as 750,000 homeowners who were foreclosed on

As I have noted before, this seems strikingly insignificant restitution indeed compared to the depth and breadth of damage done via big banks that contributed to the mortgage crisis. Noting this seeming slap on the wrist certainly places the criminal charges against Abacus Federal into more sobering perspective. Is Abacus really any more guilty than Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial? Who knows, but one thing is certain. A small community bank like Abacus Federal is a much safer bet to bring down and make an example of.

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