A whistleblower lawsuit filed by two mortgage brokers has been unsealed in Federal District Court in Atlanta claiming that 13 banks and mortgage companies have cheated veterans out of hundreds of millions of dollars.
According to the lawsuit, which was filed in 2006, lenders allegedly hid illegal fees in veterans' home mortgage refinancing transactions related to the Interest Rate Reduction Refinancing Loans program. This program was created to allow veterans to take advantage of low interest rates and protect them from paying excessive fees and charges in the refinancing transaction.
The lawsuit claims that the lenders repeatedly violated the rules of the IRRRL program by charging veterans unallowable fees and then deliberately concealing this information from the VA to obtain taxpayer-backed guarantees for the loans. The lenders also allegedly falsely certified to the VA, in writing, that they were not charging unallowable fees.
In the lawsuit, the brokers are claiming that the lenders have been fraudulently reporting on HUD-1 statement forms undisclosed attorneys fees and other unallowable fees on the line for the actual cost of title examination and title search.
The lawsuit says that lenders are reportedly charging $525 to $1,200 for title examination and title search fees, when the total cost should only amount to $125 to $200.
Lenders are permitted to charge veterans for recording fees and taxes, fees for a credit report and other “reasonable and customary amounts,” according to VA rules, but cannot charge attorneys' fees or settlement closing fees in refinancing transactions involving VA loans.
“The false statements and fraudulent conduct are blatant,” said Marlan Wilbanks, co-lead counsel in this whistleblower case filed by brokers Victor Bibby and Brian Donnelly.
“The banks simply reduced the charges for unallowable fees to zero, and then added those fees in the spaces where allowable fees were to be shown.
“Veterans don't know what the usual and customary charges for those allowable fees are, and the VA understandably relied upon the banks to comply with VA regulations, rather than digging into every loan transaction.
“The banks took advantage of that reliance to cheat veterans and taxpayers.”
Since 2001 the VA has guaranteed over 1.1 million IRRRL loans. According to the Office of Inspector General for the Department of Veterans Affairs, the nationwide default rate for IRRRLs is 18% or more, with approximately more than 100,000 loans going into default every year.
Nearly half of the VA loans that default result in foreclosure proceedings, costing the VA about $22,000 for each loan and also massive damages for American taxpayers and veterans.
The Atlanta-based law firms Wilbanks & Bridges and Butler, Wooten & Fryhofer are defending the brokers in this lawsuit, claiming that the lenders violated the False Claims Act.
The firms are looking to recoup damages resulting from those fraudulently induced guarantees of IRRRL loans that the lenders are liable for, as well as penalties of up to $11,000 for each violation of the act.
The defendants in this case include Wells Fargo, Countrywide Home Loans, Bank of America, JPMorgan Chase, Mortgage Investors Corp., PNC Bank, First Tennessee Bank National Association, Irwin Mortgage Corp., SunTrust Mortgage, New Freedom Mortgage Corp., GMAC Mortgage and Citimortgage. Citimortgage thinks it did nothing wrong pertaining to this lawsuit.
“We do not believe we have been served with the suit at this time. But as far as we understand the allegations about us, we believe they are without merit,” said Mark Rodgers, director of public affairs for Citimortgage.
Fred Solomon, a spokesperson for PNC Bank, said this lawsuit allegedly occurred at National City Corp., which PNC acquired in 2008.
Mortgage Investors Corp. said this lawsuit has incorrect information regarding its company because MIC does not originate loans through mortgage brokers.
“MIC has never had any relationship with the mortgage brokers bringing this case,” said an MIC spokesperson in a written statement. “The sensational claims made by these mortgage brokers in their complaint do not apply to MIC's business practices and MIC intends to vigorously defend itself against these unsubstantiated claims.”
MIC said the VA audits 10% of all loans it guarantees and despite the housing crisis the industry is currently facing, VA loans have maintained the lowest incidents of default and foreclosure of any loan type. “These mortgage brokers reference a higher default rate from 1999, omitting that the VA went on to implement new regulations to substantially lower those default rates,” MIC said in its statement.
A Bank of America spokesperson said the Charlotte, N.C.-based lender takes servicemembers and veterans matters very seriously, and will “fix our mistakes where we find we have made an error.”
GMAC Mortgage believes there are no allegations in the lawsuit that pertain specifically to the company.
The lender added, “Should this case move forward with GMAC Mortgage as a defendant, we will defend our position during the court process as we would in any other matter.”
Sun Trust Mortgage said it does not comment on pending or ongoing litigation, while the remaining lenders involved in this lawsuit did not return phone calls for comment as of press time.
