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Financial Services Law Insights and Observations

HUD, FDIC, and U.S. Attorney File Suit Against Mortgage Lending Companies

FDIC HUD FHA False Claims Act / FIRREA


On September 28, HUD, the FDIC, and the U.S. Attorney for the Eastern District of New York filed suit against a non-profit housing counseling corporation and certain mortgage lenders for allegedly running a scheme to defraud the United States and various banks out of over $5,000,000 in false claims. Filed in the Eastern District of New York, the complaint alleges that, in order to remain in HUD’s Direct Endorsement Program, a federal program that insures mortgage loans through the FHA, the mortgage lenders sought to fraudulently conceal the high default rates of their loans by funneling money through the corporation to pay their borrowers’ payments, in direct violation of FHA regulations. The mortgage lenders would then sell the federally-insured loans to FDIC-insured banks. Once either a bank’s indemnification or repurchase rights, or the period during which HUD monitored loans for early payment defaults, lapsed, the mortgage lenders would stop making payments, resulting in the ultimate default of the borrowers. The complaint seeks treble damages under the FCA, the FIRREA, and under common law theories of gross negligence, breach of fiduciary trust, and unjust enrichment.

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