Opinion
Project Unsafe Neighborhoods: DOJ Gun Policy Spawns Rash of Gangland Mortgage Fraud Cases
by The Fat Lady Sings
02 October 2007

Does anyone remember Project Safe Neighborhoods, a dubious DOJ effort first implemented by the Bush administration in 2002 to reduce gun violence by federalizing gun crimes?

The same DOJ officials who engineered the US Attorney scandal (Mercer, Elston, et al) hypothesized that violence could be eradicated by requiring US Attorneys to randomly prosecute gun crimes, including misdemeanors, as federal offenses. They imposed harsh sentencing guidelines on first offenders and serial felons alike.

Hell, I had forgotten about the topic, and I researched it extensively!

At least, I had almost forgotten it until I heard this NPR piece, attributing a sudden increase in inner city mortgage fraud, and the subsequent erosion of impacted neighborhoods, to the consistent federal prosecution of offenses involving guns. It appears that, like other not-so-aptly named Bush projects (Clear Skies, Healthy Forests, the PATRIOT Act, Operation Iraqi Freedom); Project Safe Neighborhoods performs in a manner diametrically opposed to its moniker.

It destroys communities.

A Tool to Extend the Reach of the DOJ

Project Safe Neighborhoods began as an effort to extend the reach of federal prosecutors and federal sentencing guidelines through precedent, eroding the authority of states.

From all appearances, the DOJ was slated to become the political enforcement arm of the Executive Branch and the Republican Party. William Mercer, who was simultaneously the absentee US Attorney in Montana, and the unconfirmed number three official at DOJ headquarters in Washington, explained in a legal opinion he directed to Senate Judiciary, that the DOJ was instructing US Attorneys to systematically seek harsher sentences than state maximums, even if it meant complicating their cases. Under PSN guidelines, federal prosecutors were instructed to prosecute gun crimes in federal courts regardless of the severity of the offense. The DOJ was attempting to extend federal reach through precedent, and hoped invoking mantras such as "elimination of gun violence" would make this effort palatable to a hypnotized voting public.

The DOJ ran into several unexpected hurdles. A skeptical Republican Congress, who were traditionally strong proponents of state's rights, did not fund PSN at levels requested by the DOJ, while  a Supreme Court ruling written by Chief Justice Scalia made it more difficult to systematically impose federal sentencing guidelines.

Several rebellious US Attorneys, most notably Carol Lam, ignored the policy, insisting instead on prosecuting serial or extremely violent offenders first. She argued that crime is most effectively reduced by removing the most dangerous perpetrators, not by increasing the number of federal prosecutions.  

At the same time that the Bush DOJ was supposedly improving neighborhood safety by extending its reach, US Attorneys were quietly increasing prosecutions of Democratic elected officials for corruption (real or imaginary), and voter fraud (mainly imaginary). Again, some rebellious US Attorneys such as Lam refused to comply, insisting instead on prosecuting the most serious corruption cases first, even if they happened to be members in good standing of the Republican Party. US Attorneys who fell into this category were also targeted for removal.

In 2005, in an attempt to reinstate funding for PSN, the DOJ produced a report purportedly proving that PSN successfully addressed the issue of violent crime [see PSN Report (PDF) begins on page 19]. However, almost no data in the report supported the claim that violent crime decreased as federal prosecutions of gun crime increased, while a great deal of the data presented seemed to indicate that prosecutors like Lam, who targeted the most violent and chronic offenders first, were the most effective at combating violent crime.

PSN Introduces Gangs to Mortgage Fraud

Now, it appears that some of the policies enforced through Project Safe Neighborhoods may actually be increasing rates of violent crime in communities, by unintenitionally encouraging street gangs to move into mortgage fraud.  The process may have been twofold: 1) street gang members sent to federal prisons for gun crimes were coached by white collar criminals; and 2) steep consequences for gun crimes caused gangs to develop lucrative and less risky criminal ventures.   Gang-run mortgage fraud rings appear to be fraudulently buying up ghetto properties at unprecedented rates, at least in Chicago, while allowing properties to decay,  driving legitimate homeowners out by jacking up property costs, and using fraudulently purchased properties to house criminal activities, to lock up street corners and to launder money.

According to NPR, FBI agents in Chicago believe that gang members, incarcerated in federal penitentiaries for gun crimes, learned sophisticated new skills from white collar criminals housed at the same facilities:

"All of a sudden they were talking to and meeting with a different class of criminal, some who had participated in financial fraud themselves," Wagner says.

Jim Wagner, a former FBI agent who specialized in white collar crime, is now the president of the Chicago Crime Commission.

According to David Jackson of The Chicago Tribune, gang members now view mortgage fraud as "the new street hustle."

"If you are still making money selling drugs, you are an informant or about to be busted. Mortgage fraud is the thing to do now," said convicted identity thief Christopher Scott in a prison interview [with Jackson].

A Vicious Cycle

Relaxation of lending regulations, easy credit availability and increased federal prosecution of gun crimes seem to have created the perfect conditions for the migration of street gangs into white collar crime.

The Chicago Tribune identified 524 Cook County homes among state and federal mortgage fraud cases filed since 2000, a fraction of the actual number of mortgage fraud cases. The vast majority of these were concentrated in impoverished minority neighborhoods.

According to the Tribune, in the 41 Chicago census tracts hit hardest by mortgage fraud, 39 percent of the residents lived in poverty, nearly twice the citywide rate, and 96 percent were African-American.

Swindlers dupe their victims in a variety of ways. One common technique is to purchase a property and then fraudulently appraise it at a higher rate, reselling the property to friends or associates multiple times, and then walksing away from the loan, pocketing the money. Another is to con a legitimate home owner into unnecessary repairs, walk away with the money and leave them to pay off the loan. A con artist might easily pocket a half a million dollars in a single deal, without incurring the kinds of risks associated with sales of drugs or arms.

Impact ripples outward. Artificially increasing property values in the vicinity of the fraud cause taxes to rise and price legitimate new buyers out of the market. The building remains vacant as the case winds its way through foreclosure court, deteriorates, and attracts vagrants. Taxpayers and shareholders are stuck with cumulative bad debts.

Gangs often compound profit by using the fraudulently obtained buildings to access Section 8 moneys meant to encourage landlords to rent to the poor. One Chicago gang leader rented run-down apartments in his tenement to single mothers. He collected their Section 8 moneys and evicted them, getting the state to hire other gang members to serve the eviction notices. The gang profited handsomely at the expense of single mothers, children and taxpayers with a single individual racking up $276,951 in Section 8 profits off of the scam.

David Jackson of the Tribune reported that one enterprising Chicago Street Gang, the Black Disciples, even placed an antenna and a recording studio in a fraudulently obtained building. They hijacked the radio frequency of a Christian station to broadcast secret messages to one another across the South Side.

Granted, all of these examples are taken from a single investigation into Chicago street gangs.  The national scope of increasing rates of mortgage fraud is not yet known. According to NPR, the FBI recorded $1 billion in losses incurred nationally in 2005, but considers this figure to be low, since a great deal of fraud remains unreported.

It is probably safe to speculate that many of the gains made previously in rates of homeownership in blighted neighborhoods have been rolled back. And it is also safe to assume that Project Safe Neighborhoods has not made neighborhoods any safer.

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