New Whistleblower Opportunities in the Lending Industry
The premise is simple. Under the federal False Claims Act and FIRREA (the Financial Institutions Reform Recovery and Enforcement Act), the federal government is able to pay whistleblowers for information about fraud committed by financial institutions. The programs are different but hundreds of millions of dollars of awards have already been paid.
What does it take to earn such an award? Solid information and a good whistleblower lawyer specializing in financial fraud cases.
The False Claims Act dates back to the Civil War. That law allows whistleblowers to bring claims in the name of the United States government against companies or people who have defrauded the government. Because most mortgages are directly (FHA) or indirectly (Fannie Mae and Freddie Mac) insured by the federal government, lenders and mortgage companies that don’t follow lending rules are subject to the huge monetary penalties and fines.
The law allows whistleblowers to file suit if the lender has falsely certified that it is complying with the various HUD rules or Fannie / Freddie lending rules (hence the name “false claims” act). Not every false claim results in a loss to taxpayers but generally lenders that take shortcuts have much higher default rates on their loans.
Why? Because lenders that cut corners are generally more interested in earning a commission than protecting taxpayers from bad loans.
Under the False Claims Act, whistleblowers can receive up to 30% of whatever the government collects from the lender. Because the law allows triple damages, awards can quickly escalate into the millions or tens of millions of dollars. (The average award is more like 20%).
FIRREA dates back to the savings and loan crisis in the 1980’s. Prosecutors like the law’s anti-fraud provisions because they carry a much lower burden of proof. That means it is easier for the government to win FIRREA cases against bad lenders. If a lender misrepresents the quality of a Federal Housing Administration backed loan, chances are good that there is a winnable FIRREA claim.
While FIRREA cases are easier to prove, whistleblower awards are limited. Under the law, they are capped at $1.6 million.
So how does a HUD audit equate to a whistleblower audit?
HUD relies on its Neighborhood Watch program to select companies for audit. That program tracks the default rates of lenders and branches. Those with above average default rates usually have problems hence are more likely to be audited. The problem, of course, is HUD’s limited resources. Like the IRS, it can’t audit everyone.
Enter whistleblowers. Branch managers, underwriters, quality control personnel and even some mortgage company executives are most often the best source of inside information about fraud and bad business practices. Picking up the phone and reporting fraud to HUD won’t earn you any money, however. To qualify for an award under the False Claims Act, a whistleblower must actually file a lawsuit under seal in federal court. That’s where a good whistleblower lawyer comes in.
Most false claims suits concern Medicare fraud. The skill set needed by healthcare fraud whistleblower attorneys is much different than those that handle financial fraud. The latter category is quite limited.
Similar to false claims suits, FIRREA actions have special procedural rules as well.
File a FIRREA claim with the wrong person and the complaint may just sit on someone’s desk and never get investigated. Once again, a good whistleblower lawyer can mean the difference between a large award and no money.
The people reading this post are most likely folks from the mortgage industry. Therefore its helpful to list the things that can make a good FIRREA or False Claims Act case:
Net Branch violations. We have written several articles about this. Lenders frequently seek to expand rapidly by allowing branch operations. While HUD says they must be owned and operated by the bank, lenders simply pay lip service to those rules and make the branch managers personally responsible for costs. The largest pending false claims case currently pending in the United States is a net branch case; our $2.4 billion case brought by HUD against Allied Home Mortgage.
Poor Quality Control Plans. HUD has strict guidelines that lenders must follow. If your QPC isn’t up to snuff there may be a claim.
Missing “gift” or down payment verifications.
Improper fees charged to the borrower. These fees don’t necessarily mean the loans are bad but often these violations are symptomatic of other violations.
Home Mortgage Disclosure Act violations.
Incomplete or unsigned borrower documents.
If this sounds like a place where you are working, contact us. They violations are sure signs of shoddy practices. bad practices frequently result in higher default rates and that is the entry ticket to a successful FIRREA and False Claims Act case.
We are currently seeking new whistleblowers with personal knowledge of HUD violations including net branch fraud. We know of many lenders who continue this illegal practice. Not only are taxpayers hurt but so are the branch employees struggling to make a living.
We believe that our whistleblower lawyers have filed or settled more lender based whistleblower cases than any other law firm. If you think you may have a case, contact attorney Brian Mahany at or by telephone (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Want more information? We have posted over 100 whistleblower articles on our text searchable Due Diligence blog.