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 that 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.
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Not everyone was convinced that the bill is the sweeping antidote its backers claim. Skeptics suggested that 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 that 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 that 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.
"At current levels, they cannot individually review, much less thoroughly investigate, the more than 5,000 fraud allegations" that Treasury is getting every month, according to the Judiciary Committee.
The committee also wrote that the problem goes beyond simple mortgage fraud, since mortgages often became securities "bought and sold in largely unregulated markets on Wall Street."
As a result, the bill would authorize $75 million for the FBI in 2010 and $65 million in 2011.
For each of the next two years, the bill also authorizes $90 million for U.S. attorneys and Justice Department criminal, civil and tax divisions; $30 million for the postal inspection service; $30 million for the Department of Housing and Urban Development, $20 million for the Securities and Exchange Commission; and $20 million for the Secret Service.
The money should allow the FBI to hire about 190 special agents and more than 200 professional staff and forensic analysts. The FBI is expected to be able to nearly double, to 50, the number of strike forces around the country that aim to combat fraud in the nation's hardest-hit areas. Other agencies also will be able to hire more staff.
The enforcers would get new legal weapons, notably the ability to use federal fraud laws on mortgage lending businesses that Washington doesn't directly regulate or insure.
It also would be a crime to make a false statement or deliberately overvalue a property to "influence any action by a mortgage lending business." The bill also would reverse a Supreme Court ruling last year that tightened the federal money-laundering law. The court said that only profits from criminal activity could be recovered, not all the money involved. The bill would allow more money to be recovered.
One of the few controversies in Congress concerned the 10-member commission, pushed by House Speaker Nancy Pelosi, D-Calif., that would study what went wrong and how past problems could be avoided.
The Financial Crisis Inquiry Commission would have six Democrats and four Republicans, and no subpoena could be issued without the consent of at least one Republican. Its report would be due Dec. 15, 2010.
Skeptics worry that the lopsided membership won't tackle what went wrong in Congress.
"Why would we unbalance this commission, when there is just as much guilt on one side of the aisle as there is on the other?" said Rep. Michael Burgess, R-Texas, one of the few dissenting voices Monday.
Still, said Rep. Darrell Issa, R-Calif., who raised similar concerns, the bill deserves support.
"This is so much better than nothing at all," he said.
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