On February 9, 2012, the Justice Department announced the settlement of one of the largest False Claims Act cases relating to mortgage fraud in history. Bank of America (BOA) and its Countrywide Financial Subsidiaries will have to pay upwards of $1 billion for reckless behavior in underwriting loans to unqualified borrowers. These loans were insured by the Federal Housing Administration (FHA). When the borrowers could not pay back the loans, the FHA suffered hundreds of millions of dollars in damages. Originally, the FHA agreed to insure the loans without the knowledge that Countrywide was originating the mortgage loans based on inflated appraisals. Since BOA acquired Countrywide in 2008, they are responsible for the subsidiary’s actions. The $1 billion will be split between recovery for the FHA and a program to fund loan modification for anyone who is a Countrywide borrower.
This case is extremely important in holding the banks accountable for the resulting chaos of the recent mortgage crisis. What is interesting in this particular case is that the government has decided not to retrieve all of the money directly; instead it is building a program with part of the recovery to help the borrowers. While it is important for the government to restock the treasury and address the debt problem, the ultimate goal is to help the taxpayers who were hurt the most when the bubble burst. The way Countrywide conducted itself with regard to the FHA and to the borrowers, shows that it is more interested in producing solvent investments for the company, rather than adhering to the law regarding determining qualified borrowers. Not only is the settlement a victory for proponents of the False Claims Act as a necessary tool, but also for the American public.
Countrywide Financial Subsidiaries is not the only company being held responsible for its actions. Bank of America was also being investigated for its role in defrauding the government over the eligibility of homeowners involved with the Home Affordable Modification Program. It seems that even after BOA acquired Countrywide, the fraudulent practices did not end. The country is still reeling from the effects of the subprime mortgage crisis of 2008. Slowly the economy seems to be improving, but that is not the case for millions of Americans that became victims of practices like those utilized by Bank of America and Countrywide Financial. Were it not for the False Claims Act, the settlement may not have been this substantial and would not be on its way towards helping those borrowers in need. With the implementation of the Dodd-Frank Wall Street Reform bill and the strengthening of the False Claims Act, the tools are now available to expose and bring to justice these fraudulent acts.