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January 30, 2015 Mortgage Fraud

Bank of America Faces False Claims Act Lawsuit Involving Federal Refinance Program

Following the 2008 housing crisis, the federal government went to great lengths to ensure struggling homeowners were afforded every possible opportunity to keep their homes. One such effort, known as the Home Affordable Refinance Program (HARP), was enacted in 2009 to help borrowers who were “upside down” or “underwater” on their residential mortgages. In other words, the program targeted homeowners who owed more on their outstanding mortgage balance than the home was actually worth.

According to a recently unsealed whistleblower lawsuit filed in federal district court, Bank of America is engaging in the process of overcharging HARP borrowers in interest rates – an exercise that actually negates the purpose of the program in the first place. The relator’s claims rest on a theory of fraudulent inducement and he is seeking to hold the bank responsible to taxpayers for the fraudulent handling of HARP refinances.

Details of the allegations against Bank of America

The HARP program is targeted at on-time borrowers with virtually no history of delinquency in their mortgage loan or other debt. For these borrowers, the HARP program allows for a refinance of their current mortgage to one with a much lower interest rate, thereby creating a more healthy balance between the outstanding home loan debt and the value of the collateral. To offer lower interest rates, banks participating in the HARP program are required to waive certain fees – charges that were traditionally passed along to the borrower in the form of higher interest rates.

In exchange for banks agreeing to waive these fees, the government offered its own waiver of a risk-based fee known as the “loan level price adjustment” (“LLPA”). This fee was traditionally assessed in many government-backed mortgages and banks were responsible for paying the government for this charge – which was often passed on to the borrower. In addition, the government entities Fannie Mae and Freddie Mac waived certain warranties and representations that banks typically have to make in order to sell mortgages to Freddie and Fannie.

According to the whistleblower, Bank of America agreed to participate in the HARP program, as well as waive the fees required under the program’s mandates. However, the bank is alleged to have nonetheless charged borrowers higher interest rates than other refinancing borrowers. More specifically, the relator asserts that once Bank of America removed the LLPAs, it then added a number of other fees that were not charged to other non-HARP customers.

Under the whistleblower’s theory, Bank of America fraudulently induced the government into allowing it to participate in the HARP program and thereafter defrauded the government by engaging in forbidden conduct during refinance transactions with HARP customers.

Contact Berger Montague today

If you are aware of mortgage fraud in any form or believe your bank may be engaging in unlawful conduct with regard to government-backed or government-insured mortgages, contact our office right away with your information. A successful lawsuit under the False Claims Act can result in a reward of up to 30 percent of the ultimate settlement or recovery.