The U.S. government has filed a lawsuit against five mortgage lenders and their principals, alleging that they defrauded the government and a number of banks through false Federal Housing Administration (FHA) claims.
Kelly T. Currie, Acting United States Attorney for the Eastern District of New York, David A. Montoya, Inspector General for HUD, and Frederick W. Gibson, Acting Inspector General for the Federal Deposit Insurance Corporation, filed the suit against the Rainy Day Foundation, Inc., a charitable "counseling fund" with its associated business entities and principals.
"Fraudulent practices, such as those alleged here, compromise the integrity of the FHA mortgage insurance program, and harm both the housing market and homeowners by contributing to loan defaults and housing foreclosures."
According to a press release from the Justice Department,  the Rainy Day Foundation, together with five Eastern District of New York-based mortgage lenders and their principals, allegedly schemed the U.S. and several Federal Deposit Insurance Corporation-insured banks out of $5,605,237 in mortgage losses from false FHA claims.
The names of the other mortgage lenders were not immediately disclosed by the Justice Department.
The mortgage lenders' loans apparently went into "early payment default" more quickly and frequently than the average default rate at other lenders. In addition, the lenders also conspired with the Rainy Day Foundation to keep their higher than average default rates under wrap so they could continue to use the HUD program.
“Fraudulent practices, such as those alleged here, compromise the integrity of the FHA mortgage insurance program, and harm both the housing market and homeowners by contributing to loan defaults and housing foreclosures,” Currie said. “We will continue to vigorously use all means at our disposal to stop those who engage in such activity.”
HUD Inspector General Montoya added, "The Rainy Day Foundation and its multiple subsidiary companies solicited the business of FHA Direct Endorsement Lenders by promising to manipulate HUD databases to hide the existence of delinquent loans from the FHA. Such behavior will not be tolerated.”
FDIC Acting Inspector General Gibson also noted, “The FDIC-OIG was pleased to support the Department of Justice and HUD in investigating this matter and in helping to ready this civil suit. Together we can broaden the government's efforts to pursue damages resulting from misconduct that has harmed the nation's financial institutions and its mortgage markets.”
The complaint seeks:
- Treble damages and penalties under the False Claims Act, 31 U.S.C. § 3729 et seq.
- Fines under the Financial Institutions Recovery, Reform and Enforcement Act ("FIRREA"), 12 U.S.C. § 1833a.
- Damages and indemnification under the common law theories of gross negligence, breach of fiduciary duty and unjust enrichment.