Home America Mortgage and Taylor Bean & Whitaker Mortgage will pay more than $320 million to settle allegations they falsified loan applications and documentation — including appraisals — and misrepresented homebuyer qualifications in order to secure government backing for mortgages, National Mortgage News reported Jan. 7.
The settlement is the result of two whistleblower complaints filed under the False Claims Act in the U.S. District Court for the Northern District of Georgia in 2006.
The whistleblowers, Comfort Friddle, a loan processer at Home America, and Stephanie Kennedy, vice president of operations at Home America, alleged that their firm deceived the federal government by falsifying data and misrepresenting borrowers’ ability to repay. Home America then sold the faulty loans to TBW, which permitted Home America to continue its fraudulent practices, National Mortgage News reported.
According to the complaint, Friddle noticed that files sent for processing seemed to identify many of the same properties and that the borrower profiles were identical. She also noticed that many of the loan applicants were very young and all of the properties seemed to come from the same downtown neighborhood.
Concerned that she had discovered a flipping scheme, she brought the matter to Kennedy’s attention, and she, in turn, requested further appraisal review of the homes before closing on the loans. She pointed out that prior foreclosures were being sold for four times the amount paid by the seller.
Kennedy suggested that the required desk review of appraisals be augmented by drive-by appraisals to determine if the increase in value is warranted. However, she said that her efforts to investigate potentially fraudulent activities resulted in the loss of her job. When the loans she questioned defaulted, the government was left on the hook.
In cases filed under the False Claims Act, governments can recover three times the amount subject to fraud as well as civil penalties of $5,500 to $11,000 per claim, National Mortgage News reported. Meanwhile, whistleblowers can receive 15 to 30 percent of the government’s recovery.