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Mortgage Fraud: It Never Really Went Away

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The fallout from the 2008 financial crisis continues to roll on. Over the past few years, the U.S. Department of Justice has settled whistleblower suits brought under the False Claims Act against a number of financial institutions. In all, $4.65 billion was recovered from January 2009 through the end of fiscal year 2014. In 2014 alone, the amounts recouped for civil fraud and false claims against federal mortgage programs included:

  • $1.85 billion (Bank of America Corporation)
  • $614 million (JPMorgan Chase)
  • $428 million (SunTrust Mortgage Inc.)
  • $200 million (U.S. Bank).

There may be more mortgage fraud that needs to be unearthed. Perhaps you have suspicions. Perhaps you have more than suspicions, as in the cases of whistleblowers who have worked for the financial institutions or for contractors with the institutions. However, sometimes even those who are not insiders discover fraud. One woman, not an employee but a lawyer who was facing foreclosure, received what she believed were falsified documents from her bank. After some digging that revealed discrepancies involving robo-signing, she filed a false claims suit which was settled for $95 million. Her whistleblower’s share of the settlement was $18 million. The financial institutions involved were Bank of America, Wells Fargo, JPMorgan and Citi.

There’s Mortgage Fraud, and Then There’s Mortgage Fraud

Before 2008, “mortgage fraud” usually meant that the borrower who was securing a loan was using falsified documents or information. But with the mortgage-backed securities crisis, mortgage fraud now often means fraud on the part of the lender, not the borrower, and it is this kind of mortgage fraud on which we will concentrate.

Any mortgage fraud, theoretically, can be prosecuted using a whistleblower’s testimony. But if the whistleblower wants the protections afforded by the False Claims Act (FCA), the question becomes whether the deception involved defrauding the government. These days, more than 40 percent of new mortgages are backed by the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD). Mortgages can also be guaranteed for veterans under provisions of the Veterans Administration, which are known as VA loans. Therefore, mortgage fraud that involves one of these varieties of government-backed mortgages could be pursued by a whistleblower under the FCA’s provisions and protections.

The other major players in the guaranteeing of mortgages are the Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (known as Freddie Mac). But there is a significant question as to whether FCA-based whistleblower suits can be brought with regard to fraudulent mortgages insured by these two entities. Both of them are currently under government “conservatorship” and are not fully private and profit-seeking, but neither are they fully governmental agencies. In 2013, a U.S. district judge shut down the government’s efforts to use the FCA to go after the mortgage fraud allegedly practiced at Bank of America and Countrywide Mortgage, so the issue with regard to “Fannie” and “Freddie” is not clear.

However, when it comes to mortgages insured by the FHA and HUD, the issue is clear: Fraud can be prosecuted under the FCA, and whistleblowers will have the standard FCA protections.

How is all of this relevant? If a lender knows that a government agency will guarantee a loan, it’s possible that the lender will be more disposed to lend money to a borrower who does not meet certain qualifications. In such a case, they might give mortgages to unqualified borrowers and have the FHA or HUD insure them to mitigate the risk to the financial institution, even if they suspect that the borrowers will default on the loan. If the lender does this or something similar, it is fraud, and it is prosecutable under the FCA.

It’s worth noting here that FHA-guaranteed loans have the highest default rate, at 24.3 percent, much higher than the 6.2 percent default rate for loans guaranteed by Fannie and Freddie or the 11.5 percent for loans guaranteed by the VA. Therefore, there may be a greater temptation to commit fraud as explained above. Still, such cases would definitely qualify as prosecutable under the FCA.

Federal Whistleblower Laws and Protections

We’ve mentioned the False Claims Act (FCA), also known as the Whistleblower Act, Qui Tam Statute or Lincoln Law. Under the provisions of the FCA, you might be entitled to bring a qui tam action (meaning you are suing on behalf of the government), if you can show knowledge of fraud against the government.

You have certain protections under the FCA if you blow the whistle on fraud. In addition to a share of the government’s recovery, you are entitled to compensation and job reinstatement if you are fired, demoted, harassed, or otherwise experience discrimination because of your whistleblowing.

If you are a mortgage fraud whistleblower, another federal act that comes into play is the Fraud Enforcement and Recovery Act of 2009 (FERA). One of FERA’s provisions extended FCA statutes to cover private mortgage businesses not directly regulated or insured by the government. (Banks and other financial institutions are federally regulated and insured.) FERA also made other important changes to the major fraud against the United States statute, the federal securities statute, and the federal money-laundering statutes.

Under the FCA, whistleblowers are entitled to a significant cash reward, generally being eligible to receive between 15 and 30 percent of any damages collected.

Do You Know Something?

If you believe you have evidence of mortgage fraud and want to pursue a whistleblower case, it can be useful to have experienced legal help on your side to assist you in gaining the protections you are entitled to. The laws are complex and the “hoops” you must jump through can be intimidating and confusing.

We hope you’ll let your conscience be your guide, and that you will do the right thing.

If you have knowledge about mortgage fraud of any kind, an experienced whistleblower attorney at The Louthian Firm Accident & Injury Lawyers can assess your case and help you file the necessary disclosure statement with the government. In some instances, the government will intervene (take part in your lawsuit). A qualified attorney can help you structure your claims in such a way that the government will be persuaded to intervene, possibly increasing the likelihood that you will recover reward money. However, even if governmental parties decide not to intervene, it might still be advisable to pursue your case without their involvement.

For a free, confidential evaluation of your case, call The Louthian Firm Accident & Injury Lawyers today at 803-592-6231 or fill out the online consultation form. The Louthian Firm Accident & Injury Lawyers. On the case. Around the clock.

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