The ripple effect of the 2008 housing bubble burst continues to reveal the true gravity of the extent to which mortgage lenders were involved in fraudulent dealings with borrowers and the government. Mortgage loan fraud is an enormous problem, hurting the poor and the braoder economy. The False Claims Act (“FCA”), though receiving much press lately in the healthcare industry, is routinely applied to the mortgage industry and works to hold lenders responsible for fraud involving any government lending, mortgage or insurance industry. The FCA has been adopted in nearly every state and provides state prosecutors with a similar tool with which to expose and punish those who prey upon vulnerable homeowners facing economic hardship.
United States ex rel. Friddle and Kennedy v. Taylor Bean & Whitaker Mortgage Corporation et al.
In a 2014 case stemming out of Georgia, a mortgage lender agreed to settle FCA allegations for $320 million after two vigilant whistleblowers came forward with undeniable allegations of fraud and taxpayer waste. The relators in the case, Stephanie Kennedy, former Vice President of Operations, and Comfort Friddle, a former loan processor, commenced their qui tam lawsuit in 2006, alleging falsified loan documents and misrepresentation of borrower qualifications by their employers Taylor Bean & Whitaker Mortgage Corporation (“TBW”) and Home America Mortgage, Inc.
In a set of facts similar to those involving Bank of America’s lending scams, these two financial institutions are alleged to have approved otherwise ineligible borrowers for mortgages while subsequently inducing the federal government to cover the loans with FHA mortgage insurance. Naturally, the government was forced to repay the balance of these loans after a large number of borrowers defaulted on their loans – resulting in an unprecedented financial burden for the FHA.
The relators’ assertions in this case are indicative of the nature of the widespread fraud plaguing the residential lending industry and involved blatant altercation of documents. More specifically, the banks routinely engaged in altering credit scores, entering false employment statuses and even inflating reported income in order to approve the borrowers for FHA-backed mortgages. When the relators brought this unlawful transfer of risk to the attention of several high-ranking members of the corporation, both were promptly fired.
Relators further revealed that, in its “heyday,” these lenders were closing hundreds of loans each month and gained a reputation in the Atlanta area as a lender who “could get any loan to closing.” The whistleblowers punctuated their allegations with facts detailing the CEO’s burgeoning lifestyle, which involved a private jet, luxury vehicles, a mansion, and a majority interest in an Atlanta nightclub.
Follow Their Lead
The relators in this case were ordinary employees determined to do the right thing. In a statement by whistleblower Comfort Friddle:
“I’m sure there are other people out there right now who are debating whether they should come forward who feel led to do the right thing but are afraid. Those people should know they don’t have to be alone. Good lawyers will guide you every step of the way, explain what’s happening and how it affects the case, and make sure that the Government takes your claims seriously.”
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