February 12, 2014 View entire issue of ANO         Close 

Suit Alleges Banks Filed False Mortgage Claims with HUD

A whistleblower filed suit against 22 banks, mortgage companies, trustees and custodians Feb. 3, alleging that they submitted fraudulent mortgage claims to the U.S. Department of Housing and Urban Development, National Mortgage News reported.

The plaintiff, Lynn E. Szymoniak, has a history of gaining large settlements from such lawsuits, and in 2012, she enabled the government to recover $95 million from the nation’s top five mortgage servicers as part of the $25 billion national mortgage settlement. As a result, she received $18 million for information she provided on false claims on loans guaranteed by the Federal Housing Administration.

In her most recent suit, Szymoniak filed claims against Deutsche Bank, Wells Fargo, JP Morgan Chase and Bank of America, among others. The suit seeks recovery of damages and penalties on behalf of the federal government, 16 states, the District of Columbia and the cities of Chicago and New York for losses they incurred in the purchase of private-label mortgage-backed securities that supposedly used fraud in foreclosure filings over the course of the last five years, National Mortgage News reported.

While the FHA reimburses servicers for losses and fees on bad loans that it guarantees, banks can be held liable for defaulted loans under the False Claims Act if they falsely certify that a mortgage has met all government requirements. The act also permits whistleblowers like Szymoniak to file suit on the government’s behalf.

The suit alleged that banks created fraudulent documents because original loan documents either did not exist or were lost or destroyed. Some documents were created well after the trusts’ closing dates and, in some instances, after the loans defaulted. It further states that the federal government then purchased the MBS with missing or forged documents through a variety of avenues, including the Federal Reserve and the U.S. Department of the Treasury.

Szymoniak told National Mortgage News that she expects damages to amount to around $10 billion.

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