DFI has sent a handful of loan originators and other licensees to the King County Prosecutor to pursue criminal charges against. There does not appear to be any particular pattern to the referrals: some allegations are serious and some are not. FLE Amanda Herndon appears to be in the forefront of the referrals.
What does this mean. For one, a licensee needs to be very careful when submitting to a deposition by the Department or otherwise answering questions. Anything you write or testify to can and might be used against you in subsequent criminal cases. This development completely undermines any remedial element to DFI investigations: those in the mortgage industry must now consider refusing to cooperate in DFI investigations lest they face criminal prosecution. We have seen loan originators submit to questions with advice of attorney only to have that testimony used as the basis of a criminal charge.
The second interesting thing is that DFI is paying a prosecutor and support staff to “do all things necessary for criminal law enforcement activities in areas involving mortgage lending fraud referred by DFI under this Agreement. Specifically, the ECU will help investigate and will prosecute cases of fraud/theft/false reporting involving activities in the mortgage lending process based on referrals from DFI.” DFI is to pay deputy prosecutor Hugo Torres $16,665 per month and investigator Linda Williamson $12,727 per month. This arrangement raises significant issues around DFI’s allowed use of public funds and also of due process. DFI has now effectively created its own criminal prosecution team. Nowhere in the legislative charge of DFI do I see such authority.
And then, there is the issue of how cases are selected for prosecution by DFI. Has the criteria for prosecution gone through the rule making process or is this another case of arbitrary and capricious decision making?
DFI’s new endeavor undermines its mission. It apparently conflates “regulate” with “prosecute.”