The federal government will receive $45 million from the JPMorgan Chase Bank to settle allegations in a lawsuit that it overcharged military borrowers.
Interest Rate Reduction Refinancing Loans (IRRRLs) are a form of refinancing which allows qualified personnel to take current VA loans and refinance to a lower rate. They’re also known as VA Streamline loans. One of the many protections offered to VA-qualified borrowers is that certain closing costs are not allowed under the VA program. The suit claims that “defendant lenders over-charged veterans, charged unallowable fees, and then deliberately concealed those facts from the VA to obtain taxpayer-backed guarantees for the loans, which would not have been available but for that concealment. At the same time, defendant lenders falsely certified to the VA, in writing, that they were not charging unallowable fees.”
The scope of the allegations against nine lenders is huge.
Rampant Fraud Alleged
The suit alleges that the lenders submitted “hundreds of thousands of false and fraudulent documents, records and claims to the United States to fraudulently induce the VA to guarantee IRRRL loans. Tens of thousands of those IRRRL loans have gone into default or resulted in foreclosure, which has resulted in massive damages.”
Because the VA program is a form of mortgage insurance, when a loan fails the VA must pay the lender an amount equal to a portion of the principal, generally 25 percent of the loan. The VA gets the money to pay off claims from the up-front fees paid by military families when they finance and refinance with VA loans. More claims could force the VA to raise premiums for military borrowers.
Penalties and Payments
According to the suit, lenders are responsible for all damages to the government as well as penalties of $11,000 for each VA IRRRL violation of the False Claims Act.
“The false statements and fraudulent conduct are blatant,” alleged co-lead counsel Marlan Wilbanks of Atlanta. “The banks simply reduced the charges for unallowable fees to zero, and then added those fees in the spaces where allowable fees were to be shown. Veterans don’t know what the usual and customary charges for those allowable fees are, and the VA understandably relied upon the banks to comply with VA regulations, rather than digging into every loan transaction. The banks took advantage of that reliance to cheat veterans and taxpayers.”
This mortgage settlement may spur others. Still pending are allegations against Wells Fargo Bank, Bank of America, CitiMortgage, Suntrust Mortgage, Washington Mutual Bank, PNC Bank (which acquired National City Mortgage Co.), Countrywide Home Loans, Mortgage Investors Corp., and First Tennessee Bank (which acquired First Horizon Home Loan Corp.).
Photo courtesy of epicharmus