03/18/2010 05:12 am ET Updated May 25, 2011

U.S. Mortgage Fraud Remains at Epidemic Levels

Despite the Wall Street crash and bailout, U.S. mortgage fraud remains at epidemic levels. The math tells the story. The U.S. Treasury Department, under the authority of the Bank Security Act, collects "suspicious activity reports" (SARs), which the financial industry is required to file. In 2000, the Treasury received 3,500 of these reports of fraudulent mortgages. It received 18,000 SARs in 2004, 21,000 in 2006, 46,000 in 2007 and more than 63,000 in 2008.

On May 21, 2009, Robert S. Mueller III, director of the FBI, testified before the House Judiciary Committee that the mortgage industry had filed more than 33,000 SARS in the first 7 months of fiscal year 2009, representing about $22 billion of potential mortgage fraud. When the final numbers for fiscal year 2009 are released, the total will be at least as high as during the pre-crash period.

The sheer magnitude of this crime wave has overwhelmed FBI capacities. In part, this reflects the shift earlier this decade of more than 2,400 agents to anti-terrorism work and the failure of the Bush administration and Congress to provide adequate monies to hire replacements. In fiscal year 2007, the FBI had only 120 agents assigned to mortgage fraud. That number increased to 180 agents in FY 2008 and 250 today.

This situation will not be changing in the near future. The FBI will not have the additional necessary assets to investigate much more of this fraud because the Obama administration has requested of Congress only enough additional funds to hire 50 new special agents and 91 professional support staff.

One immediate action the administration and the existing regulatory agencies can take, and under current reduced funding levels, is to administratively rid the financial industry of the people who created the current crisis. A legal and long-used means exists - impose a lifetime ban on working in the securities and financial industry.

The experience of former financial star Henry Blodget illustrates how. Blodget was a high visible financial analyst at Oppenheimer & Co. and then at Merrill Lynch during the 1990s. After the bust of the dotcom bubble, the Securities and Exchange Commission and other law enforcement agencies examined copies of his emails, revealing that his real assessments were other than what he published for clients. The SEC charged him with securities fraud. Although he settled without admitting or denying the allegations, the SEC barred him for life from working in the securities industry. Hundreds of other people in the money industry need sidelining along with Blodgett.

Among those who merit a lifetime ban are the CEOs of those institutions that failed because of their sub-par mortgage activities. So too are the directors of those corporations.

In American corporations, the buck stops with its board. A member of a private corporate board of directors has major duties: provide continuity; select, appoint and, if need be, fire a chief executive; govern the organization by broad policies; acquire resources needed for operation; and account to the public for the products and services and the expenditures of funds.

One of a board's principal responsibilities is to provide for fiscal accountability and accept responsibility for all conditions and policies aligned with new or experimental programs. Under the self-regulation ethos that existed during the years leading up to the present financial crisis, the CEOs and board members were particularly responsible for the actions of the institutions they headed. And, with this responsibility should come accountability.

Nothing can better send a message to the world that the United States is serious about restoring the soundness and integrity of its money industry than by banning from it the prominent people who deceived the nation and the world, and sending some to prison for a long, long time.