A scathing report from the Inspector General of the Federal Housing Finance Agency claims the agency isn’t properly equipped to monitor loan buybacks from banks and mortgage companies. While the Inspector General criticizes the agency, we worry that some banks will take advantage of the lack of the agency’s readiness. That means plenty of opportunities for whistleblowers to take the lead and insure compliance. The FHFA regulates both Fannie Mae and Freddie Mac, the entities that insure most residential first mortgages.
The report says that FHFA adopted the “putback” program even though it did not have the technology to make it work. The plan, called the “representation and warranty” plan is supposed to reduce taxpayer burden and improve the quality of loans backed with federal loan guaranties. Because the agencies weren’t ready for the program, however, it might actually have the opposite effect.
The Inspector General says that the FHFA, Fannie and Freddie don’t have the necessary tools, computer systems and processes to adequately monitor the loans they are repurchasing. The report says that taxpayers are now “at greater risk” for losses that cannot later be recouped.
Obviously, most lenders will not seek to take advantage of these lapses. But we have seen from recent whistleblower cases against Bank of America, Countrywide and Wells Fargo that even the biggest banks are not immune to overlooking government regulations.
What does this mean for whistleblowers? Plenty.
The report notes that, “There is potentially [the] unmitigated risk of errors in the new loan review framework and the [GSEs] may experience credit losses that otherwise could have been avoided.” Fortunately, in recent years a steady stream of whistleblowers has been willing to come forward and alert the government when a lender fails to meet HUD, Fannie or Freddie guidelines.
The whistleblower cases to date have mostly centered on the underwriting and packaging of residential loans. We now expect to see a wave of cases involving loan buybacks by the government.
The FHFA partially disagreed with the Inspector General’s report. The IG serves as an independent watchdog to the agency.
Whistleblowers are eligible to receive up to 30% of what the government collects from companies that violate HUD and FHFA guidelines. (The usual award is closer to 20%).
To become a whistleblower, one needs original source inside information about fraud to a government agency or program. Although Fannie Mae and Freddie Mac are private companies, they have been under federal conservatorship since the mortgage meltdown. That means a fraud of the buyback regulations potentially qualifies for a whistleblower award under the federal False Claims Act. If the wrongdoer is a bank, there is a potential whistleblower claim under the Financial Institutions Reform Recovery and Enforcement Act.
Think you information that qualifies you as a whistleblower? Give us a call. Having the right whistleblower lawyer could mean the difference between receiving millions and getting no award at all. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731. All inquiries are kept in strict confidence.