Whistleblowers Charge VA Loan Fraud; Sue 13 lenders

by devteam October 5th, 2011 | Share

Three law firms are seeking participantsrnin a class action law suit seeking damages from 13 lenders for alleged fraud</bagainst borrowers seeking Veterans Administration (VA) home loans.  The suit charges that the lenders charged feesrnfor their loans which were unallowable under VA mortgage rules, an action thatrntechnically, according to the suit, invalidated the VA guarantee.</p

The suit, U.S. ex rel, Victor E. Bibby & Brian J. Donnelly v the defendantsrnlisted below, was originally filed in 2006 by two “whistleblowers” who werernalso mortgage brokers.  The suit was refiledrnby the three law firms in the U.S. District Court for the Northern Division ofrnGeorgia this past June and is brought as a quirntam lawsuit, a civil proceeding that is used by whistleblowers to help therngovernment stop many kinds of fraud such as Medicare or defense contractorrnfraud, and recover monies that have been stolen from the U.S. Treasury andrntaxpayers.  In a qui tam suit arnwhistleblower can win large rewards representing a portion of the civilrnrecovery.</p

Listed as defendants are Wells FargornBank, Bank of America, JPMorgan Chase Bank, GMAC Mortgage, CitiMortgage,rnSuntrust Mortgage, Washington Mutual Bank, PNC Bank (which acquired NationalrnCity Mortgage Co.), Countrywide Home Loans, Mortgage Investors Corp., FirstrnTennessee Bank (which acquired First Horizon Home Loan Corp.), Irwin MortgagernCorp. and New Freedom Mortgage Corp.</p

The premise for the suit rests on a VA rulernthat certain fees typical to a real estate transaction i.e. attorneys’ fees orrnsettlement closing fees are not allowed in closing a VA loan for the purposernof refinancing.  The defendantsrnallegedly charged these fees but disguised them as allowable fee entries on HUDrnsettlement statements.  For example, thernlender might charge a settlement fee of $400, but rather than entering thatrnamount on the line provided in the statement where it would be disallowed it mightrnbe bundled into the fee for a title search, increasing what would normally bernan allowable $150 charge to $550.    </p

The plaintiff’s attorneys charge that veteransrndon’t know what the usual and customary charges for those allowable fees are,rnand the VA relied upon the banks to comply with VA regulations, rather thanrndigging into every loan transaction.  “The banks took advantage of thatrnreliance to cheat veterans and taxpayers.”</p

According to the court papers, in thernlast ten years, more than 1.2 million of these refinanced loans have been madernto veterans and their families and up to 90 percent of them may have beenrnaffected by the alleged fraud. “By concealing the unallowable fees theyrncharged, the banks benefited in two ways,” said Mary Louise Cohen, arnWashington, DC, attorney who is also representing the whistleblowers. “Thernbanks collected the illegal fees from veterans, and they obtained hundreds ofrnmillions of dollars in loan guarantees they otherwise wouldn’t have received.” </p

They may have benefitted in a third wayrnas well.  If the VA loans were sold torninvestors, it is probable that the VA guarantee allowed the lender to extract arnbetter price for the loan than would be the case without the guarantee.</p

This type of fraud ultimately cheatedrntaxpayers as well as the borrowers because charging an unallowable feerninvalidates the VA guarantee which typically insures about 25 percent of thernloan amount.   When the loans containingrnunallowable fees went into default and foreclosure they cost taxpayers hundredsrnof millions of dollars in reimbursements to the lender under the guarantee.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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