Bad QC Plans Offer New Whistleblower Opportunities
Federal law allows whistleblowers to receive huge cash awards for reporting fraud or false statements in connection with federally insured loans. The False Claims Act allows whistleblowers to collect up to 30% of whatever the government collects from mortgage companies or banks that have defrauded the FHA, VA, Fannie Mae or Freddie Mac. That means most residential loans are covered by the False Claims Act.
Another federal law, the Financial Institutions Reform Recovery and Enforcement Act (FIRREA), allows whistleblowers to collect up to $1.6 million if a company’s conduct harms a federally insured bank.
Some of the biggest whistleblower awards in history have been paid to banking and mortgage lending workers with inside information about fraud or bad lending practices. In the last several years, most of the major billion dollar cases against the “too big to fail” banks were started or made possible by concerned insiders.
Not every case will settle for a billion dollars, of course. But that doesn’t mean there are not many, many opportunities for whistleblowers. FHA’s Office of Lender Activities and Program Compliance issues a quarterly newsletter through the Mortgagee Review Board (MRB).
It is helpful to examine the MRB’s compliance activities to better understand where problems are occurring. According to the most recent MRB actions, one of the most common deficiencies is a lender’s failure to implement a Quality Control Plan. The requirements for these plans can be found in the Lender Approval Handbook 4060.1 REV-2 Chapter 7. (Note these requirements also apply to servicers in certain circumstances.)
When a lender certifies a loan for guaranty by the FHA, Fannie or Freddie, it certifies that all applicable HUD requirements have been met. Failure to implement or follow a proper Quality Control Plan can therefore be a false certification. The government can seek actual damages (which can be trebled) or impose a penalty of up to $11,000 per false certification. Each mortgage submitted for guaranty that is not in compliance with a valid and sufficient quality control plan is a potential false certification
Often when lenders get sloppy with quality control plans or begin to cut corners, loan defaults increase. When that happens, chances are there is a good False Claims Act case in the making. Frequently we see quality control plans that are either ignored or that have become seriously out of date. Either way, these types of problems are ripe for whistleblower claims.
To become a whistleblower, one must have inside, original source knowledge of a fraud or false statement involving a federally funded or backed program. CMBS transactions probably do not quality but most residential loans do. (Commercial lending deficiencies may qualify for a whistleblower award under FIRREA if a federally insured bank is one of the lenders.)
If you believe that you have information that qualifies you for a whistleblower award, contact a good whistleblower lawyer. The attorney you choose may mean the difference between a big award or no money at all.
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The whistleblower lawyers at Mahany & Ertl represent the whistleblower in the largest pending False Claims Act case involving a lender, HUD’s $2.4 billion case against Allied Home Mortgage. We understand the lending industry and know how to help whistleblowers get the maximum award possible. Need more information? Contact attorney Brian Mahany at or by telephone at (direct). All inquiries kept in strict confidence.