by Brian Mahany
Five years after the housing crisis began and the feds continue to pursue those responsible for the mess. Although the federal false claims act statute of limitations prevent some whistleblower cases from going forward, whistleblowers can still earn a hefty payday under FIRREA statute. FIRREA is short for the Financial Institutions Reform, Recovery and Enforcement Act of 1989.
This month the feds charged Golden First Mortgage Corp under both the false claims act and FIRREA. Like many past whistleblower cases against the lending industry, the U.S. Justice Department says Golden First made poor quality loans.
Most home mortgage loans are insured. In some cases the feds insure the loans directly through loan guaranty programs offered by the FHA. In other cases, loans are guaranteed by quasi government entities such as Fannie Mae or Freddie Mac. If federal funds are used to pay loan guaranties, a false claims case can be brought.
By writing bad loans, Golden First profited at the expense of taxpayers. They earned their commissions but when the loans defaulted taxpayers were forced to foot the bill. The complaint was just unsealed so it’s unknown whether Golden First will admit and pay or fight.
Prosecutors say that the company paid kick backs to employees to speed up loan approvals. With the pressure to move applications at a fast pace, many bad loans were written. The government claims that at one point Golden First’s loan default rate exceeded 60%!
U.S. Attorney Preet Bahara filed the case in a Manhattan federal court. In recent years, most of the major whistleblower suits involving banks and lenders have been filed there.
What makes this case unique is the size of the loss. Most of the false claims act and FIRREA claims adopted by the feds show losses of $100 million or more. According to the complaint filed by the government, however, the losses here were $12.3 million. Under the false claims act, however, the government can seek triple damages.
Whistleblowers are entitled to a portion of whatever is collected by the government. Typically 20 to 25%. On a $36 million claim that can mean a payday of $9 million for the whistleblower.
If you worked at, audited or have inside knowledge about fraud in residential mortgage programs or banks receiving TARP monies, give us a call. We represent whistleblowers in claims against lenders and banks.