There have been successful False Claims Act cases to report bank fraud. As a result of the economic crisis in 2008 (namely the housing bubble) and the resulting influx of government funds into the banks (“bailout”) there was an increase in qui tam cases and settlements against banks.
Bank Fraud and HUD Mortgage Requirements
Many of the cases against big banks where the result of whistleblowers seeking to report bank fraud. The cases occurred from a period of 2012 through 2016. The types of bank fraud involved:
- representations regarding defective loans,
- originating and underwriting non-compliant mortgage loans, and
- making misrepresentations to the FHA and VA.
Examples of Bank Fraud Qui Tam Settlements
- $85 Million Whistleblower Settlement: In this bank fraud case, Fifth Third Bancorp certified mortgage loans as eligible for Federal Housing Administration Insurance. The defendant did not report the ineligibility to HUD after allegedly later determining that the loans were, in fact, ineligible.
- $113 Million Qui Tam Settlement: In another bank fraud case, Freedom Mortgage Corporation (mortgage originator and underwriter based in New Jersey) ignored Federal Housing Administration (FHA) guidelines. These FHA guidelines were for FHA-insured mortgages between 2006 and the end of 2011. In addition to generating mortgages that did not meet requirements to be FHA-insured, the originator and underwriter allegedly failed to report defaults to the federal government.
- $123.5 Million False Claims Act Settlement: A whistleblower filed a qui tam case to report bank fraud against MetLife Home Loans LLC. The qui tam complaint alleged that mortgage loans insured by the government did not meet federal requirements.
- $212.5 Million Whistleblower Settlement: First Tennessee Bank N.A. allegedly partook in bank fraud by creating deficient federally insured mortgage loans.
- $968 Million Qui Tam Settlement: SunTrust settled a bank fraud case for improper mortgage origination and service practices. The settlement was with the DOJ, 49 state attorneys general, and the District of Columbia’s attorney general. Of the total recovery, $418 million was tied to allegations that the bank originated and underwrote loans in violation of its obligations to the FHA.
- $200 Million False Claims Act Settlement: In this bank fraud settlement it was alleged that U.S. Bank violated the False Claims Act by knowingly originating and underwriting FHA-insured loans that did not meet the government’s requirements. Specifically, the Department of Justice alleged that the bank, an FHA direct endorsement lender (“DEL”), failed to maintain a sufficient quality control program to identify deficiencies in many loans it certified for FHA insurance. Furthermore, the bank did not report those deficiencies or take corrective action after the fact.
- $614 Million Qui Tam Settlement: JPMorgan Chase violated the FCA by originating and underwriting non-compliant mortgage loans submitted for insurance coverage and guarantees by the Department of Housing and Urban Development’s Federal Housing Administration (“FHA”) and the Department of Veteran Affairs (“VA”).
- $70 Million Whistleblower Settlement: This bank fraud case was against Franklin American Mortgage Company. the qui tam case alleged that the bank originated and underwrote mortgage loans that did not meet the requirements to become insured by HUD’s Federal Housing Administration (“FHA”). The company also allegedly failed to follow quality control requirements, causing FHA to insure ineligible loans and suffer losses.
- $16.65 Billion False Claims Act Settlement: Bank of America made false representations to government-sponsored enterprises Fannie Mae and Freddie Mac that the mortgage loans they received from defendants were quality investments. According to the government, the company and its subsidiary allegedly were aware that residential mortgage loans they made to borrowers were defective (and failed to disclose that fact) and based on inaccurate representations and warranties to Fannie Mae and Freddie Mac.
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