HUD Audits Accuse Major Lenders of False Claims Fraud

The Huffington
Post
reported late yesterday that five of the country’s largest mortgage lenders may have defrauded taxpayers by filing false claims with the Federal
Housing Administration (FHA). Confidential
audits conducted on Bank of America, JP Morgan Chase, Wells Fargo,
Citigroup, and Ally Financial (formerly GMAC) provided information which
has now been referred to the Department of Justice for a decision on filing
charges.

The author of the article, Shahien
Nasiripour, said the Inspector General (IG) of the Department of Housing and
Urban Development (HUD) conducted five separate investigations in February
and March and concluded that the banks filed false claims against the Federal
Housing Administration, a violation of the False Claims Act, a Civil War-era
law.

According
to the Huffington Post, “The resulting reports read like veritable indictments of
major lenders, the sources said. State officials are now wielding the documents
as leverage in their ongoing talks with mortgage companies aimed at forcing the
firms to agree to pay fines to resolve allegations of routine violations in
their handling of foreclosures.

“The audits conclude that the banks
effectively cheated taxpayers by presenting the Federal Housing Administration
with false claims: They filed for federal reimbursement on foreclosed homes
that sold for less than the outstanding loan balance using defective and faulty
documents.”

Apparently Bank of America and one
other company refused to cooperate with the investigations but the BoA audit finds
that the company failed to correct faulty foreclosure practices even after
imposing a moratorium that lifted last October. Back then, the bank said it was
resuming foreclosures, having satisfied itself that prior problems had been
solved.

The Huffington Post quoted a federal official as saying that most of the targeted
banks have not seen the audits but they are generally aware of the findings.

The HUD actions are the latest in a
series of investigations, discussions, and proposed settlements between lenders
and mortgage servicers arising out of the housing and foreclosure crisis.  Earlier this week the New York Attorney
General Eric
T. Schneiderman was said to have requested documents and requested “discussions”
with three major banks apparently regarding the institution’s securitization
activities prior to the crisis (FULL STORY).  A task
force composed of the 50 state attorneys general has been negotiating a
settlement with major mortgage servicers, most of which are owned by the major banks,
over claims of wrong doing related to foreclosures.

Also according to the Huffington
Post, this week the mortgage servicers under investigation by the attorneys
general offered $5 billion to set up a fund to help distressed borrowers and
settle claims of inappropriate foreclosures. 
“That
offer — also floated by the Office of the Comptroller of the Currency in
February — was deemed much too low by state and federal officials.  Associate U.S. Attorney General Tom Perrelli,
who has been leading the talks, last week threatened to show the banks the
confidential audits so the firms knew the government side was not “playing
around,” one official involved in the negotiations said. He ultimately did not
follow through, persuaded that the reports ought to remain confidential,
sources said. Through a spokeswoman, Perrelli declined to comment.”

The
Huffington Post article is available
at http://www.huffingtonpost.com/2011/05/16/foreclosure-fraud-audit-false-claims-act_n_862686.html

Article source: http://www.mortgagenewsdaily.com/05192011_foreclosure_fraud_fha.asp

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