This post was written by Wendy Schwartz and Andrew Bernasconi.
The Justice Department has once again taken aggressive action against financial institutions and mortgage lenders – this time through a False Claims Act action that seeks more than 1.1 billion dollars in damages. On Tuesday, the government filed a complaint against mortgage lender MortgageIT and Deutsche Bank (which acquired MortgageIT in 2007) claiming the lenders violated the False Claims Act (FCA) by falsely certifying compliance with the requirements of HUD’s Direct Endorsement Lender program, and approving FHA loans for unqualified homebuyers.
The use of the FCA against lenders involved with federally-backed loans is nothing new – but the government’s approach in this complaint is a departure from past practice and especially troubling because it alleges systemic fraud covering thousands of loans – thereby dramatically expanding the scope of potential exposure for lenders who were involved in the Direct Endorsement Lender program and underwriting for FHA loans. And it appears this is just the tip of the iceberg, since the government has indicated that suits against other lenders likely are on the horizon.
For more information, please see Reed Smith’s attached client alert on this latest attempt to recover money from the financial institutions and lenders that the government claims caused the housing meltdown.