Financial Fraud Claims Under the False Claims Act: Combatting Mortgage Fraud and More

While it is no longer headline news, the impact of mortgage fraud continues to be felt nationwide.  As the fallout continues, so does the fight to make companies and individuals pay for violating the law and contributing to a major financial crisis.  The False Claims Act (“FCA”) is one of the most important tools in this fight.  Its use in this context is an important reminder of the FCA’s broad coverage, reach that extends far beyond health care fraud to include financial industry fraud that improperly takes money from the government or its agencies.  Our government fraud whistleblowers’ law firm works with honest individuals to combat fraud on the government using this important legislation.

Lender Pays $64 Million to Resolve Claims of Mortgage Fraud

On Friday May 13, the Department of Justice (“DOJ”) announced that M&T Bank had agreed to pay $64 million to resolve allegations its mortgage lending practices violated federal guidelines and the FCA.  The underlying suit dealt with the Bank’s role as a Direct Endorsement Lender (“DEL”) for the Federal Housing Administration (“FHA”).  Under that program, M&T could originate, underwrite, and endorse FHA insured mortgages so that the holder of the loan could submit a cmoneyrolllaim to the FHA if the lender later defaults.  The government relies on DELs to follow program rules, including the use of a quality control program, and does not independently review the loans for compliance.  When companies violate this trust, it can lead to the government endorsing unqualified loans and paying out substantial money after lenders default on loans that should never have been approved.

In agreeing to the settlement, M&T Bank admitted that from January 2006 through the end of December 2011 it certified loans for FHA insurance that failed to meet program requirements.  M&T also admitted it failed to review an acceptable sample of the loans as required by the program and created a quality control process that produced lower error rates than a more appropriate process would have generated.  Additionally, the Bank admitted it failed to fulfill the self-reporting requirements of the program, failing to report a single default until 2008 and then reporting only a small fraction of the loans it knew contained major errors.

As a DOJ official explains, “Mortgage lenders that fail to follow FHA program rules put taxpayer funds at risk and increase the chances of borrowers losing their homes.”  The FCA suit was originally brought by a former bank employee who will receive a share of the proceeds for her efforts.

Targeting Financial Fraud Using the FCA

Over the past decade, the government and private individuals have used the FCA to target a range of financial fraud matters.  In addition to cases involving mortgage fraud, examples of financial fraud cases under the FCA that have resulted in a recovery via settlement or verdict include cases involving Small Business Administration loans (see DOJ press releases on a $26.3 million settlement in 2010 and a $7.1 million settlement in 2013) and loans issues by the U.S. Department of Education (see DOJ press releases on a $9 million default judgment in 2016 and a $57.5 settlement in 2010).  Like in other FCA arenas, many of these cases were brought by private whistleblowers.

If you have witnessed financial fraud, particularly if your concerns have been dismissed by those committing the fraud, you are probably unsure of what to do next.  Call our financial fraud law firm at (800) 427-7020.  We would be honored to help you.

See Related Blog Posts:

False Claims Act Attorney Examines Federal Student Aid Fraud and Other Forms of Higher Education Fraud

Spotlight on FHA Mortgage Fraud: The Threat and How Private Citizens Can Fight Back with the Help of Our Mortgage Fraud Law Firm

Fighting Financial Fraud in 2016: Northern California Lawyer Warns of Financial Scams Targeting Seniors

(Image by Zach Mccarthy (aka zzzack))