Two whistleblowers filed a False Claims Act complaint in 2006 in the U.S. District Court for the Northern District of Georgia claiming the businesses engaged in a pattern of fraudulent activity that resulted in false applications for mortgage guarantees to be presented to the Department of Housing and Urban Development.
The relators in this case were Stephanie Kennedy, vice president of operations at Home America who worked for the company from June 2002 and August 2006, as well as Comfort Friddle, a loan processor for Home America between December 2004 and August 2006.
Home America is a mortgage company that offers conventional and nonconventional home loans in Alabama, Florida, Georgia, Kentucky, North Carolina and Tennessee. They offer loans for new home construction, home equity/home improvement, home purchase, and refinancing of existing mortgages. About one-third of the loans made by Home America are government insured and most of these loans are for first-time homeowners, people with low income, or individuals with spotty credit history.
According to the Relators, Greg Hicks, principal at Home America, and a group of loan officers and processors he selected deceived the federal government into insuring bad loans by hiding or falsifying data about borrowers eligibility for various loan programs and their ability to repay.
These fraudulent loans were then sold to TBW, which allowed Home America to continue the scam.
While working at Home America, Friddle observed that loan conditions were disregarded, loans were underwritten by non-HUD qualified personnel, fraudulent files pervaded Home Americas businesses practices, and documents were created and falsified in order to obtain financing, according to the complaint.
At the beginning of 2005, Friddle noticed certain errors regarding files sent for processing by two particular loan officersAndre White and Jermaine Smith. These files seemed to be mirrored where the same property would be listed, and/or the profiles of the borrowers were identical. For example, many of the loan applicants were very young and all of the properties seemed to come from the same area in downtown Atlanta.
This metropolitan market contained property values that fluctuated and made it a prime target for flipping schemes. Flipping is when an asset is purchased at a fraudulently depressed price, alleged improvements are made to the housing unit and then the property is resold at a much higher value.
Meanwhile, Kennedy served as the escalation point for the problems reported by processors like Friddle. Kennedy undertook her own investigations in which she raised red flags with Home America and the defendants in this case.
Kennedy asked that further appraisal review be done for other properties in the area before the loans closed, the complaint stated. She pointed out that prior foreclosures were being sold for four times the amount paid by the seller.
Kennedy told the defendants that TBW required desk reviews of appraisals and given the variation of values in the Atlanta area and the significant amounts of money that the properties were being resold for, Kennedy advocated a drive by appraisal review to determine if the increase in value is warranted.
However, Kennedy was not only rebuffed but ultimately fired for her activities. When Kennedy reminded Hicks of the TBW regulations, she was told, [Screw] TBWs rules. Get these loans into closing, the complaint says.
When the loans inevitably defaulted, the government insurance had to pay. Through this scam, Home America pawned off hundreds of millions of dollars in bad loans onto the federal government.
Kennedy and Friddle were represented by whistleblower attorneys Mike Bothwell, Julie Bracker, and Jason Marcus of Roswell, Ga.-based Bothwell Bracker PC.
When we filed this case in 2006, the mortgage crisis was barely a speck on the horizon, and FCA cases against mortgage companies were virtually unheard of, Bracker said. But were engaging in one of the most blatant examples of fraud we had ever seen, and we knew it had to be reported. Fortunately for the taxpayers, the False Claims Act is a flexible tool and we are delighted with the results.
Federal and state False Claims Acts allow private citizens with insider knowledge of fraud and abuse to bring an action on behalf of the governments and to participate in the recovery of the stolen funds. These statutes allow governments to recover three times the amount they were defrauded, in addition to civil penalties of $5,500 to $11,000 per false claim. Successful whistleblowers can receive between 15% and 30% of the governments recovery.
When companies like TBW and Home America commit fraud, everyone suffers, Friddle says. Its tempting to bury your head in the sand and pretend that you dont see whats happening, but if you dont speak up, everyone is harmed. The effects of this kind of fraud will be felt throughout our economy for years to come.