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Mortgage fraud low priority at Justice: New report

The U.S. Justice Department did not ensure that mortgage fraud was prioritized at the level it said it would publicly. That's according to a new report released by the department's Office of the Inspector General, an independent auditor.

"The OIG further found significant deficiencies in DOJ's ability to report accurately on its mortgage fraud efforts," according to the report.

U.S. Department of Justice, Washington, D.C.
Source: Wikipedia
U.S. Department of Justice, Washington, D.C.

Specifically, the OIG found that the FBI ranked mortgage fraud as the lowest criminal threat in its lowest crime category. The FBI received $196 million in federal funds to investigate mortgage fraud activities from 2009 through 2011. That was when fraud involving so-called "robo-signing," foreclosure processing came to light. Mortgage servicing employees were signing thousands of documents without reading them.

The OIG claims it tried to review the scope of the Justice Department's prosecution efforts involving mortgage fraud, but could not because not enough data was provided.

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"DOJ could not provide readily verifiable data related to its criminal enforcement efforts because of underreporting and misclassification of mortgage fraud cases in the case management system used by the Executive Office for United States Attorneys (EOUSA)," the report reads.

One glaring example of inaccurate reporting was cited by the OIG. Specifically, it says, the Justice Department inflated the number of criminal defendants by five-fold during an October 2012 highly publicized press conference. The event was held to tout the success of the Distressed Homeowners Initiative, a mortgage fraud program involving the Justice Department and the Financial Fraud Enforcement Task Force. It took a year for the Justice Department to correct the mistake.

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The OIG did find some examples Justice-led efforts to prioritize the investigation and prosecution of mortgage fraud cases, including the Criminal Division's leadership of its mortgage fraud working group and the Federal Bureau of Investigation's (FBI) and United States Attorneys' Offices' participation on more than 90 local task forces and working groups.

Justice spokesperson Ellen Canale said: "The facts regarding the department's work on mortgage fraud tell a much different story than this report. In the time period in question, the number of mortgage fraud indictments nearly doubled, and the number of convictions rose by more than 100 percent. As the report itself notes, even at a time of constrained budget resources, the department has dedicated significant manpower and funding to combatting mortgage fraud."

UPDATED: This story was updated to include comment from the Justice Department.

By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.

Questions?Comments? facebook.com/DianaOlickCNBC

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.