DOJ Files Civil Suit Against Mortgage Lenders and Counseling Fund

DOJ  •  FCA/FIRREA  •  FDIC  •  HUD

On September 28, 2015, the acting United States Attorney for the Eastern District of New York announced the filing of a civil suit against several mortgage lenders and a consumer counseling and relief fund.  The suit alleges that the lenders conspired with the counseling fund in an effort to hide their high default rate from the Department of Housing and Urban Development so the lenders could continue to issue loans insured by the Federal Housing Administration.  It is alleged that the lenders gave their own money to the counseling fund, which would then make payments on behalf of the lenders’ borrowers so that they would not default.  Once the loans aged beyond the contractual right to force repurchase, the lenders would stop making payments and the borrowers would default.

The complaint seeks treble damages and penalties under the False Claims Act, fines under the Financial Institutions Recovery, Reform and Enforcement Act (“FIRREA”), and damages and indemnification under the common law theories of gross negligence, breach of fiduciary duty and unjust enrichment.  The investigation was brought by HUD’s Office of the Inspector General with assistance from the FDIC’s Office of the Inspector General.

The DOJ filed a separate suit and simultaneous settlement against a lender for the same conduct. The company and its principals agreed to pay $424,859 to settle the claims.

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