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 Mortgage Fraud Sanctions: What to Expect 

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Michael Santos

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When people engage in mortgage fraud, what sanctions follow? That depends. Let’s have a simple look at three individuals who had a role in mortgage fraud. Angelo Mozilo, Craig Whitehead, and Paige Kinney.

Angelo Mozilo founded Countrywide Mortgage. By the early 2000s, his company became a leader in the “subprime” mortgage racket. Between 2001 and 2006, Mozilo earned nearly $500 million in compensation for his role as CEO of Countrywide. In addition to his high salary, Mozilo dumped hundreds of millions worth of his personal stock on the market. At the same time that he was enriching himself personally, as CEO of Countrywide he allocated funds to purchase Countrywide stock to keep the share price high.

Those decisions led the SEC to charge Mozilo with insider trading and securities fraud. He settled by paying a $67.5 million in fines, but Countrywide paid $20 million of that settlement. News reports labeled Mozilo one of the “25 people to blame for the financial crisis” that derailed the US economy in 2008.

Despite Mozilo’s leadership that led to massive amounts of mortgage fraud, authorities chose not to bring a criminal case against him. Some speculate that his friends in high places had a role in liberating him from the crosshairs of prosecutors. His “Friends of Angelo” (FOA) program resulted in the disbursement of billions in mortgages at below-market rates to highly-placed government officials who may have influenced prosecutors. The DOJ dropped its criminal investigation against Mozilo in February, 2011.

Paige Kinney was a loan officer at Countrywide. She participated in a scheme to issue those easy-to-get loans. Her role in the offense led to the issuance of approximately $40 million worth of mortgages, and she received kickbacks that exceeded $8 million from the scheme.

Unlike Mozilo, Kinney did not have friends in high places. Neither did she understand the system or how bad decisions could aggravate her problems. Prosecutors charged her with several crimes related to her role in the mortgage fraud, holding her responsible for the people who obtained mortgages but failed to repay the loans. A judge sentenced her to 15 years in prison and fined her $22 million for her convictions.

Craig Whitehead provides another example of what happens to people who engage in mortgage fraud. He worked with Washington Mutual as a mortgage officer and he admitted to participating in a mortgage-fraud scheme. Losses from his role exceeded $13 million. But his cooperation with prosecutors resulted in Mr. Whitehead receiving a much lighter sentence. A judge sentenced him to three months of home confinement.

Readers should draw their own conclusion of how justice works in our country. Mozilo sat at the helm of an organization that contributed to a global financial crisis. He set policy and compensation plans that systemically led to massive losses. In his leadership role, Mozilo succeeded in finding influence from government leaders. Prosecutors chose not to charge him criminally, and he remains liquid for several hundred million dollars as a consequence of his business decisions.

Underlings in the mortgage fraud fiasco that plagued our country did not make at as well. Those who played the system well by accepting responsibility, expressing remorse, and cooperating with prosecutors received relatively light punishments like Mr. Whitehead. Those who didn’t understand how their decisions could aggravate sanctions, like Ms. Kinney, received much more onerous sentences. She is serving a 15-year sentence in harsh conditions. The $22 million fine she received means that it will be very difficult for her to build a new life upon release.

Individuals who are charged with white-collar crimes do not all receive the same treatment. Defendants should educate themselves on how the system operates so that they can make more informed decisions when confronting crimes like mortgage fraud.

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