As lenders scrambled to ready their businesses for the implementation of TRID, the U.S. government was taking a stand against alleged fraud. The government filed a lawsuit at the end of September, pursuing five mortgage lenders along with their principals. The claim? That these lenders defrauded the government with false FHA claims. After an investigation to determine the existence of these claims and to what extent this cost the government money, the lawsuit was filed in order to bring an end to the behavior perpetrated by the lenders as well as to bring awareness to the issue of fraud.
The government argued that these practices compromised the entire integrity of the mortgage insurance program offered by the FHA in addition to damaging the housing market. The primary business targeted in the lawsuit was the Rainy Day Foundation. The government argued that this company, along with five area lenders in New York, worked together to defraud the FDIC out of $5.6 million in falsely claimed FHA mortgage losses. The government believes that the mortgage losses were purposely reported inaccurately.
According to the government, the loans initiated by these lenders were being fast-tracked into early payment default. This was done at a rate much higher than other lenders. The claim went on to argue that these lenders worked with the Rainy Day Foundation to keep the details of their above-average default rates secret so that the lenders could still participate in the HUD program. More details are expected to be revealed about the claim in future weeks, but for now the exact details of the alleged fraudulent claims are being kept somewhat under wraps.
The report was put together by HUD and the Department of Justice, but the suit has not named the five lenders mentioned just yet. The government states that it remains committed to seeking out instances of fraud and shutting them down quickly in order to protect the integrity of the government programs as well as the housing marketing in general.
The complaint is being pursued under the False Claims Act, arguing for treble penalties and damages in addition to damages, indemnifications, and fines under the Financial Institutions Recovery, Reform, and Enforcement Act. The government also argues that it may be entitled to damages under the legal theories of breach of fiduciary duty, gross negligence, and unjust enrichment.