Latest Settlement Reveals Mortgage Fraud Continued Years After Financial Crisis Ended

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We are reaching the end of a decade since mortgage fraud hit its peak in 2007. However, the latest settlement by IberiaBank suggests that at least one lender continued aspects of mortgage fraud against the Federal Housing Administration (FHA) well after becoming informed of their wrongdoing.

Fifth Third Banks Pays $85 Million in Mortgage Whistleblower Lawsuit


Fifth Third Bancorp has settled DOJ charges that it failed to report 1,400 defective mortgages for $85 million. It was discovered that these loans originated between 2003 and 2013 were not eligible for FHA insurance during post-closing quality reviews but the company did not report the problems to the government until 2012.

The lawsuit was initiated by a whistleblower complaint under the False Claims Act before the company voluntarily self-reported. The whistleblower was represented by a local Philadelphia whistleblower law firm – congratulations to them and their client on good work.

JPMorgan, Citi, Bank of America and U.S. Bancorp have all settled mortgage fraud lawsuits alleging they failed to follow the FHA’s underwriting standards in insured loans.

The most high profile lawsuit this year has been Quicken Loans, which filed a declaratory judgment action against the Federal Government in the Eastern District of Michigan a few days before the Department of Justice filed its complaint in the District of Columbia. The courts are now considering whether to dismiss or transfer the lawsuits.

A few banks have settled investigations into their conduct this year but non have reached the same lofty penalties as were announced last year, led by the $16.65 billion dollar Bank of America settlement.

We also saw the Department of Justice once again evaluate whether charges should be filed against any bank executives for their role in the financial crisis stemming from their mortgage lending and mortgage-backed securities trading. It is unclear whether they will take action in light of the criticism about their lack of prosecutions against executives but the recent Yates memo has indicated that the DOJ will be looking at bringing actions against the responsible individuals in current and future cases.

Whistleblowers have been a key ingredient in helping the government discover mortgage fraud. They are eligible for rewards under both the False Claims Act and FIRREA if they follow the appropriate procedures for the whistleblower laws.

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U.S. Intervenes in False Claims Act lawsuit against Allied Home Mortgage


As reported by Bob Van Voris and Patricia Hurtado here Allied Home Mortgage Capital Corp., which last year claimed to be the biggest closely held mortgage broker in the U.S., was sued by federal authorities for alleged fraudulent lending practices.

The U.S., by and through the Southern District of New York’s U.S. Attorney’s office, has intervened on a qui tam filing by former branch manager, Peter Belli against Allied, founder and Chief Executive Officer Jim Hodge and Jeanne Stell, Allied’s chief compliance officer. The government claims one-third of the 112,324 loans originated by Allied from 2001 to through 2010 defaulted, forcing the U.S. Department of Housing and Urban Development to pay $834 million in insurance claims, according to a complaint filed in federal court in Manhattan today.

“Allied has profited for years as one of the nation’s largest FHA lenders by engaging in reckless mortgage lending, flouting the requirements of the FHA mortgage insurance program, and repeatedly lying about its compliance,” the U.S. said in the complaint. “In the past decade, Allied has originated loans out of hundreds of branches it never disclosed to HUD.”

The government, represented by the office of U.S. Attorney Preet Bharara in Manhattan, claims Hodge created a “culture of corruption” and used offshore compliance employees who didn’t even know what mortgages were. The U.S. is seeking triple damages from Allied under the federal False Claims Act.

Hud Audit

A 2000 HUD audit of two branch offices in Arizona found that Allied was operating 13 unapproved satellite offices, one of which originated 221 loans in 24 months, the U.S. said.

By 2006, HUD required that every office originating or processing Federal Housing Administration loans be approved by the agency. Allied continued to operate satellite branches, the U.S. claimed.

In applying for a new HUD ID, the U.S. said, Stell allegedly changed the address of the branch slightly, by adding a suite number or changing “Street” to “St.”, so that the FHA system couldn’t detect that it was issuing multiple IDs to Allied branches. In late 2010 and early 2011, Allied switched all of its remaining approved branches from the ownership of Allied to Allied Home Mortgage, thereby obtaining new IDs for the branches.

Allied employed individuals with criminal convictions in violations of HUD and FHA requirements, the U.S. said. Washington State banned a Spokane branch manager from working as a mortgage broker in 2006 after he was convicted of stealing clients’ money and laundering it, according to the complaint.

The case is U.S. v. Allied Home Mortgage Corp., 11-cv-5443, U.S. District Court, Southern District of New York (Manhattan).

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If you feel you may have information concerning mortgage fraud, please call 800-590-4116 for a FREE AND CONFIDENTIAL attorney consultation today.

Government Settles $158 Million Mortgage Fraud Suit With Citigroup


This past week, Citigroup Inc. came to a $158 million settlement with the Justice Department over the Mortgage division’s fraudulent loan origination and lending practices. Thanks to the work of a courageous whistleblower, the government was able to hold Citigroup accountable. The settlement here comes on the heels of last week’s Justice Department settlement with Bank of America over its practices relating to underwriting and originating loans. It appears that Citigroup will also be involved in the country-wide settlement between the government and the nation’s largest mortgage lenders. This 40-state settlement is worth $25 billion, $2.2 billion of which will come from Citigroup. Because it falsely portrayed mortgages as meeting government insurance standards, which falls under the False Claims Act, Citigroup is finally being held accountable to the American public.

Credit is due to whistleblower Sherry Hunt, a quality-assurance worker at CitiMortgage, for providing information to the government about her company’s fraudulent activities. Ms. Hunt was able to assist the Justice Department due to the reforms put in place under the Dodd-Frank Wall Street Reform Act. This legislation created a special whistleblower program within the Securities and Exchange Commission (SEC) for purposes of cracking down on broken security laws, practices that cheat investors, and other illegal practices that go beyond government fraud which is described in the False Claims Act. This program has proven to be a boon to the government and to the American public, because it has opened the door to recovery of revenue that was unfairly taken by companies who chose to ignore the law. In the past, many of these companies were able to hide their fraud and if someone tried to expose their actions, the companies would retaliate against that person. Now, under Dodd-Frank, these whistleblowers come under the protection of the SEC Whistleblower Office. The program is not without its flaws and whistleblowers continue to suffer from various types of retaliatory actions, but it is a step in the right direction.

The American people have waited too long for the government to hold accountable those responsible for the recession. Millions have lost their homes, have gone into bankruptcy, and have lost their jobs. Citigroup contributed to this problem by ignoring the standards set for choosing borrowers and using the government’s insurance to back up their unnecessary risks. Action was needed in order to show Citigroup they could not risk the American taxpayers’ money, and that there would be consequences to knowingly defrauding the government. The creation of the SEC whistleblower program has been an important by-product of the recession, because now the government can effectively fight back.SEC Chairman Mary Schapiro has even said that the program has brought in thousands of tips from potential whistleblowers that have helped their investigate team prosecute offenders more efficiently. Hopefully, the recent actions against these mortgage giants will not only hold accountable those responsible for defrauding the government, but also act as a warning to other would-be perpetrators of mortgage fraud.

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Bank of America Settles Billion Dollar Mortgage Fraud Case


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.

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Just weeks after being found liable for violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), Bank of America, Corp. (“BofA”) is again facing allegations of mortgage related fraud.  This time the lawsuit asserts that BofA defrauded the federal government and multitudes of borrowers by gaming the Home Affordable Refinance Program (“HARP”).  The Federal Housing Finance Agency (“FHFA”) established HARP in March of 2009 to help alleviate the troubles created by plummeting property values after the burst of the U.S. housing bubble in 2006.

Specifically, HARP facilitates refinancing for underwater homeowners, who are otherwise current on their payments, by offering favorable interest rates and refinancing without mortgage insurance.  In order to participate in HARP, an underwater homeowner’s mortgage must be owned or guaranteed by federally-backed Fannie Mae or Freddie Mac.  To further encourage refinancing, the FHFA substantially reduced loan level price adjustments (“LLPAs”), common risk-based fees, for HARP loans purchased by Fannie and Freddie.  The removal of LLPAs was designed as a cost reduction for lenders, who would in turn pass the savings on to borrowers.

However, one such homeowner, John J. Platz, alleges in his qui tam complaint filed under the False Claims Act that BofA profited illegally by first, pushing the FHFA to drop LLPAs, but then failing to pass along savings to consumers.  Platz contends that this violated the terms and conditions of payment for lenders under HARP and resulted in the submission of thousands of false claims to the federal government.

Young Law Group is a nationwide leader in whistleblower representation and has successfully represented numerous clients in some of the nation’s largest qui tam cases for over a decade.  For a free confidential consultation, please call Eric L. Young, Esquire at (800) 590-4116 or complete the online form here.

Mass Mortgage Fraud Settlements Upcoming

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Nine banks are nearing agreements to resolve the U.S. Government’s investigation into their sales of mortgage bonds prior to or during the financial crisis. Morgan Stanley has previously said that it agreed to pay $2.6 billion to resolve the matter. Goldman Sachs is now discussing a similarly sized payment of $2 to $3 billion to end the probe.

Other banks that are expected to settle in the near future are Barclays, Credit Suisse, Deutsche Bank, HSBC Holdings, Royal Bank of Scotland (RBS), UBS and Wells Fargo. Bloomberg says they are “set to settle.”

The investigations relate to suspected violations of federal law related to the sale of mortgage-backed securities. JPMorgan Chase, Bank of America and Citigroup resolved the allegations against them for more than $35 billion in cash and consumer relief. The upcoming settlements involving mortgage fraud are not expected to reach as high, with a range in amounts from a few hundred million to a few billion dollars.

The past settlements have charged the banks with a variety of violations, including penalties for violating the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) and the False Claims Act. Both FIRREA and the FCA authorize payments for whistleblowers.

The U.S. Federal Housing Finance Agency (FHFA) also has an outstanding lawsuit against RBS on behalf of Fannie Mae and Freddie Mac. The estimates are that it could pay a settlement of up to $4.5 billion if it loses its challenge concerning the statute of limitations. RBS has contended that the 2011 lawsuit was filed too late. In total, FHFA has collected more than $19 billion from 16 banks.

In other news, the New York Post announced that there is a new investigation into the fraudulent manipulation of the $12.5 trillion Treasuries market. According to the New York Post, the investigation into the setting of interest rates at Treasury auctions is in the early stages and the government has requested information for three of the twenty two financial institutions acting as primary government debt dealers. We haven’t seen confirmation of the investigation by any other paper yet.

U.S. Department of Justice Scores Major Win Against Mortgage Fraud


This week the U.S. Department of Justice (“DOJ”) announced a significant victory in the fight against mortgage fraud.  A federal jury in the Southern District of New York found Bank of America Corp. (“BofA”) and former Countrywide executive, Rebecca Mairone, liable for civil fraud after a lengthy trial focusing on the companies’ actions leading up to the financial crisis of 2008.  BofA acquired Countrywide and assumed its liabilities just months before the financial collapse, from which the nation is still reeling.  While U.S. District Court Judge Jed Rakoff will determine the ultimate penalty, the DOJ is seeking $848.2 million from the financial giant.

The suit, U.S. ex rel. O’Donnell v. Bank of America Corp, originated with a whistleblower, former Countrywide executive Edward O’Donnell, who provided inside information into the firm’s fraudulent home loan practices and surely proved invaluable to the case.  The case surrounds a Countrywide program, known as the “High Speed Swim Lane,” or tellingly “Hustle” for short.  Under “Hustle” Countrywide originated millions of dollars in shoddy home mortgages, which were subsequently sold to government operated Fannie Mae and Freddie Mac.  At the time, Countrywide eliminated the substantive vetting of loan recipients, while simultaneously paying lucrative bonuses to employees to incentivize volume, a proverbial recipe for disaster.  Not surprisingly, about forty-three percent of the loans issued under “Hustle” had material defects.  After the economy collapsed, precipitating the federal government takeover of Fannie and Freddie, American taxpayers were left holding the bag.

To prosecute the case, DOJ utilized the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), an often overlooked weapon in its arsenal.  Among other provisions, FIRREA outlaws fraud against a federally insured financial institution.  Similar to other federal laws that fight fraud, FIRREA has a whistleblower provision through which knowledgably insiders are entitled to a percentage of the government’s recovery.

In a rare move for a bank facing legitimate fraud allegations, BofA opted not to settle out of court, but defend the case at trial with a highly paid team of corporate defense lawyers.  One must wonder whether it now regrets that decision, given an increasing climate of public hostility towards risky lending and investing practices.  Seemingly indicating the DOJ’s unwillingness to balk at the prospect of facing off against financial giants in court, U.S. Attorney Preet Bharara in the Southern District of New York recently stated, “[t]his office will never hesitate to go to trial to expose fraudulent corporate conduct and to hold companies accountable, particularly when it has caused such harm to the public.”

Young Law Group is a nationwide leader in whistleblower representation and has successfully represented numerous clients in some of the nation’s largest qui tam cases for over a decade.  For a free confidential consultation, please call Eric L. Young, Esquire at (800) 590-4116 or complete the online form here.

Wells Fargo, Goldman Sachs Settle Mortgage Lawsuits

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It has been quite a few months since we have heard anything big about the continuing pursuit of mortgage fraud lawsuits. However, that silence changed last week with the announcement on Friday of a $1.2 billion settlement by Wells Fargo. It was followed today by a $5 billion settlement agreement with Goldman Sachs. The Justice Department settlements concluded enforcement actions under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and other legal theories. It also puts the U.S. Government and financial industry one step closer to putting the financial crisis created by bad mortgages behind it.

DOJ Rewards False Claims Act Whistleblowers with $160+ Million in First Half of FY2015

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It’s time to examine the False Claims Act recoveries for the first half of the U.S. Government’s fiscal year 2015 since the calendar reads April. So far, the U.S. has recovered more than $1.2 billion under the federal False Claims Act, according to Taxpayers Against Fraud. That is down by more than 50% over last year but not a particularly big disappointment given the way last year started for the Department of Justice. It would have been hard to keep up the pace set by the Johnson & Johnson, JPMorgan and Suntrust settlements last year.

This year’s leading settlements under the anti-fraud law so far are DaVita ($389 million) in October and Supreme Foodservice GmbH ($146 million in civil lawsuits and $288.36 million in the criminal case) in December, and Metlife ($123.5 million) in February.

Health Care Fraud

DaVita agreed to pay $350 million to resolve the allegations it paid kickbacks to induce referrals of dialysis patients. DaVita reportedly offered lucrative partnerships to physicians with patient populations suffering renal disease to induce referrals to their dialysis clinics. It also agreed to a civil forfeiture of $39 million for two joint ventures in Denver, Colorado. The whistleblower in the case reportedly received $65 million plus interest.

After DaVita, there’s been a handful of settlements for amounts in the $25 to $75 million range. Violations of the Stark Law and the Anti-Kickback Statute still seem to be key areas where health care companies are at risk of violating the law.

In descending order, settlements under the False Claims Act by health care companies include Community Health Systems ($75 million), OtisMed/Stryker ($41 million), Daiichi Sankyo ($39 million), Extendicare ($38 million), Dignity Health ($37 million), Organon ($34 million) and CareAll ($25 million).

Mortgage Fraud

There’s been a massive drop in the recoveries coming from housing and mortgage fraud. Through this point last year, the U.S. had already reached settlements under the False Claims Act totaling more than $1 billion between Suntrust and JPMorgan. So far this year, the only significant settlement we have seen announced by the DOJ in this area under the False Claims Act was the $123.5 million settlement with MetLife.

There’s also an agreement in principle between Morgan Stanley and the DOJ to settle an investigation into the Wall Street Bank’s mortgage practices for $2.6 billion. It’s too soon to allocate any portion of this settlement to the False Claims Act, but it could be a nice bump in the total when it is announced by the DOJ.

The U.S. has had another victory in this area – it just can’t be counted as a win for the False Claims Act. The federal government’s complaint that led to the $1.375 billion settlement with Standard & Poor’s, half of which went to the Federal Government, was brought under FIRREA. FIRREA was easily the big winner last year in the fight against fraud, eclipsing the False Claims Act for the first time ever.

The other big FIRREA case right now is the appeal between Bank of America and the Department of Justice over the $1.27 billion verdict in a whistleblower-initiated lawsuit.  The False Claims Act allegations were dismissed two years ago but the case against the company under FIRREA remained.  This case was specifically excluded from the massive $16 billion settlement last year and the Judge Rakoff denied a new trial in February.

The drop-off in the False Claims Act and FIRREA in this area could have been easily predicted. It was unlikely that the U.S. could repeat the $3.1 billion in federal funds it recovered under the False Claims Act or the staggering $11 billion under FIRREA.  It was the first time that the DOJ used the FCA to recover more from mortgage fraud than it did from health care fraud.

Government Contracts

The Supreme Foodservice settlement involved a payment of $288.36 million to resolve the criminal case in the Eastern District of Pennsylvania and $101 million to resolve the civil lawsuit under the False Claims Act. The company was accused of using a United Arab Emirates company it controlled to inflate the price of food and bottled water sold under the contract. The whistleblower in the case was to receive $16.16 million from the government’s settlement. A subsidiary of Supreme Group, Supreme Logistics FZE, agreed to pay $25 million to resolve allegations of false billings in food shipping contracts during Operation Enduring Freedom.

There have been a few other mid-sized settlements in government contracts. Office Depot ($68.5 million), Iron Mountain ($44.5 million) and Lockheed Martin Integrated Systems ($27.5 million) jumped off the list. Office Depot and Iron Mountain were both best price violations. LMIS involved over-billing for under qualified workers.


Adding up the rewards from some of the bigger cases to settle this year, relators have earned more than $160 million this year from bringing qui tam lawsuits. In FY2014, whistleblowers were paid $435 million by the Department of Justice. The FY 2015 awards so far include announced payments for:

DaVita: $65 million.
Office Depot: $23 million.
Community Health: 18.67 million.
Supreme Foodservice: $16.16 million.
Iron Mountain: $8.1 million.
OtisMed/Stryker: $7 million.
Dignity Health: $6.25 million.
Daiichi Sankyo: $6.1 million.
CareAll: $3.9 million

For additional information, please contact one of our Philadelphia False Claims Act attorneys.

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