Agreement Resolves the United States’ Civil Claims that Bank of America, Through its Countrywide Financial Subsidiaries, Defrauded the Federal Housing Administration by Recklessly and Fraudulently Underwriting Loans to Unqualified Borrowers
Agreement Also Resolves Claims Involving Home Affordable Modification Program
WASHINGTON, D.C. – February 10, 2012 – (RealEstateRama) — As part of the global resolution between the United States of America and the five largest mortgage servicing banks in the country, which will bring much needed relief to financially distressed homeowners nationwide, Loretta E. Lynch, United States Attorney for the Eastern District of New York, today announced that the government will also resolve its claims against the Bank of America, Countrywide Financial Corporation and certain Countrywide subsidiaries and affiliates (Countrywide) for underwriting and origination mortgage fraud.
Since 2009, the office has been investigating the Bank of America’s lending practices to determine whether the bank, through Countrywide, which the bank acquired in 2008, knowingly made loans insured by the Federal Housing Administration (FHA) to unqualified home buyers. To date, the FHA has incurred hundreds of millions of dollars in damages as a result of this conduct. The investigation also encompassed allegations that the bank and Countrywide defrauded the FHA insurance fund by originating mortgage loans that were based upon inflated appraisals. During the investigation, the office determined that the bank’s conduct provides a basis for affirmative civil enforcement under, among other legal remedies, the False Claims Act, 31 U.S.C. §§ 3729-33.
As part of the global settlement, Bank of America will pay $1 billion to resolve the wrongdoing uncovered during the office’s investigation. The settlement will entail an immediate payment of $500 million to provide a recovery for the harm done to the FHA by Countrywide’s conduct. Payment of the second $500 million will be deferred to fund a loan modification program for Countrywide borrowers across the nation with underwater mortgages. Under the terms of the program, Bank of America will solicit all potentially eligible borrowers and provide a loan modification to anyone with an eligible mortgage who accepts the offer. If, after the expiration of three years, the bank has not met its obligation to apply the full $500 million to provide such relief, any remainder will be paid directly to the United States.
“We announce today the largest ever False Claims Act settlement relating to mortgage fraud. Through their underwriting and origination of tens of thousands of government-insured loans to unqualified borrowers, Countrywide Financial subsidiaries systematically abused the Federal Housing Administration and became some of the main players in this country’s financial crisis. We are committed to protecting the FHA’s ability to provide assistance to qualified low income and first-time home-buyers, and this settlement goes a long way toward that end. It also puts lenders on notice that they will face serious financial consequences for violating their obligations under the FHA’s programs,” stated United States Attorney Lynch.
Ms. Lynch expressed her grateful appreciation for the assistance provided by Shaun Donovan, Secretary of the Department of Housing and Urban Development (HUD); Helen Kanovsky, General Counsel for HUD; David Montoya, Inspector General for HUD; and Julie Shaffer, Director of the HUD Philadelphia Home Ownership Center.
“It is fundamental that lending institutions that earn the authority to directly endorse FHA-insured mortgages apply our standards,” said HUD Secretary Donovan. “This is the largest false claims act settlement related to mortgage fraud and will not only compensate FHA but will also ensure assistance for homeowners who have been harmed by Countrywide.”
“This agreement is demonstrative, and should serve as a model, of what results can be achieved when agencies of the United States Government join forces in a united effort to combat fraud in the FHA insured mortgage program,” said Inspector General Montoya. “OIG staff served IG subpoenas, conducted multiple interviews, reviewed loan files, and worked closely with the U.S. Attorney’s office in developing this case.” He further added, “I am appreciative of the tenacity with which the Assistant United States Attorneys approached this matter, the expertise and effort of my OIG auditors, investigators and legal team, and the assistance of the HUD Office of General Counsel and its Office of Program Enforcement and Philadelphia Home Ownership Center throughout this endeavor.”
The settlement announced today also resolves the office’s investigation, conducted with the Special Inspector General for the Troubled Asset Relief Program and the Inspector General for the Federal Housing Finance Agency, of allegations that Bank of America defrauded the government by failing to determine the eligibility of homeowners to participate in the government’s Home Affordable Modification Program. Ms. Lynch thanked Christy L. Romero, Acting Special Inspector General for the Troubled Asset Relief Program, and Steve A. Linick, the Inspector General for the Federal Housing Finance Agency, for their assistance in this investigation.
The Eastern District’s investigation was conducted by Assistant United States Attorneys Richard K. Hayes and Kenneth M. Abell, Affirmative Civil Enforcement Auditor Emily Rosenthal, Senior Trial Counsel, Commercial Litigation Branch, United States Department of Justice, William C. Edgar, and Trial Attorney, Commercial Litigation Branch, United States Department of Justice, John Warshawsky.
The joint federal-state agreement is part of enforcement efforts by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency task force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.
United States Attorney
Eastern District of New York
271 Cadman Plaza East
Brooklyn, New York 11201
Contact: Robert Nardoza
United States Attorney’s Office