In the aftermath of the Great Recession, bank failures can occur for many legitimate business reasons. Before the national real estate meltdown, many loans were made that by today’s standards may not have made economic sense. But that hardly means that a bank becoming over-extended mean that there has been bank or mortgage fraud, conspiracy, or any other criminal activity.

In the metro Atlanta area, rapid growth in the past couple of decades spawned a host of new banks. But when the real estate bubble finally burst and the recession hit in the fall of 2007, many of those banks failed. The highest concentration of failures was in the north metro, with nine in Fulton County, five in Gwinnett County, and four in Cobb County.

All in all, Georgia has had more bank failures than any other state during and since the Great Recession. But that high number is not due to criminal activity; it is due to the dynamism of the state’s housing boom. Powered by the momentum of the real estate market, banks extended a flurry of real estate loans. At the time they were issued, these loans — both commercial and residential – were considered perfectly legitimate.

Prosecutors cannot shift the rules of the game now and ramp up mortgage fraud charges just because they’re looking for someone to blame for the mortgage meltdown.

It is true that there have been three fraud convictions so far in connection with these failures. But real estate experts point out that most of the Georgia banks that failed did not do so not because of wrongdoing involving criminal intent. They failed because, like the larger national economy, they bet too aggressively on the continuance of a bull market.

Source: Atlanta Journal-Constitution, “Failed banks make mark in metro area,” March 5, 2011