The Department of Justice’s recent civil lawsuit against Bank of America/Countrywide over allegedly defective loans sold to Fannie Mae and Freddie Mac is a clear sign of the government’s more aggressive use of the False Claims Act and the 1989 thrift bailout law to target not only participants in government loan programs but any lender who sold loans to the government-sponsored enterprises, according to industry lawyers. Filed last week by the U.S. Attorney for the Southern District of New York, the suit is another example of the government’s increasingly aggressive effort to recoup taxpayer losses from the financial meltdown and to remind potential violators of the significant whistleblower provisions in the FCA and the Financial, Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), noted the Washington, DC, law firm BuckleySandler. The DOJ is following...

Republicans in the House will approve a package of legislation to reform the government-sponsored enterprises next year, according to the chief of staff for Rep. David Schweikert, R-AZ. The Arizona lawmaker is also working on a bipartisan bill to establish a framework for the non-agency mortgage-backed security market. Speaking at the ABS East conference sponsored by Information Management Network this week in Miami, Matthew Tully, chief of staff for Schweikert, said GSE reform is a top agenda item for House ...

With the help of consumer advocates, five borrowers filed a class-action lawsuit last week against Morgan Stanley alleging racial discrimination tied to the issuance of subprime mortgage-backed securities. The case appears to be the first to connect securitization and racial discrimination and the first class-action by borrowers against an investment bank. “It literally is the first case of Main Street holding Wall Street accountable for the abuses that happened and the aftermath in the Great Recession,” ...

The federal government this week filed a lawsuit against Bank of America regarding stated income mortgages originated by Countrywide Financial’s former subprime unit and sold to the government-sponsored enterprises in 2007 through 2009. The lawsuit is the first of its kind, though some legal analysts question the strength of the claims. U.S. v. BofA was filed by the U.S. Attorney for the Southern District of New York, the Inspector General of the Federal Housing Finance Agency and the Special Inspector General ...

Morgan Keegan and Regions Financial reached a $68.0 million settlement this month with mutual fund investors relating to a lawsuit alleging breaches of fiduciary duty in connection with their alleged mismanagement of the funds and their assets. The companies were accused of fraudulently overstating the values of non-agency mortgage-backed security investments and reporting false net asset values per share, resulting in significant losses to investors in four closed-end mutual funds ... [Includes three briefs]

The Department of Housing and Urban Development is mulling a recommendation by its Inspector General to consider indemnifications, civil fines or remedies under the False Claims Act against an approved California lender for allowing the recording of restrictive covenants that put the FHA insurance fund at risk for losses. The IG audit report also recommended that HUD require the lender, Shea Mortgage of Aliso Viejo, CA, to reimburse the FHA for $1.47 million in claims paid on 11 FHA-insured loans that contained prohibited restrictive covenants. Under HUD rules, any recorded agreement between the ...

A nonsupervised Arizona FHA lender whose high default and claims rate triggered a supervisory audit earlier found itself in a deeper mess for improper underwriting on a number of FHA streamline refinanced loans that resulted in losses to the FHA insurance fund. The Department of Housing and Urban Development’s Inspector General found that Allen Mortgage of Centennial Park, AZ, violated HUD’s regulations , procedures, and instructions in the underwriting of FHA-insured loans. Specifically, of the 73 streamlined refinance mortgage loans reviewed by the IG, 23 were ...

VA Home Loan Program Celebrates 20-Millionth Loan Beneficiary. The Department of Veterans Affairs this week commemorated the 20-millionth recipient of a VA loan under the agency’s Home Loan Guaranty Program. Agency officials held a ceremony at the Woodbridge, VA, home of the loan’s recipient, Mrs. Elizabeth Carpenter, whose husband, Capt. Matthew Carpenter, passed away in 2010. Since 1944 as part of the original GI Bill of Rights, the VA has been providing guarantees to 30-year mortgage loans with low interest rates and has guaranteed ...

Recent efforts by the government-sponsored enterprises and the Federal Housing Finance Agency to offer clarity and consistency about repurchase demands may or may not bear fruit as neither agency officials nor industry observers can speak confidently as to its ultimate effectiveness. According to participants at an Inside Mortgage Finance webinar this week, the GSE representation and warranty framework unveiled by the FHFA last month and the GSEs’ new quality control guidelines announced last week are steps in the right direction but there are a lot of moving parts to take into account. “We tried the best we could to address...

No matter how bad mortgage market watchers believe this week’s headline-grabbing lawsuit against Morgan Stanley by the American Civil Liberties Union is, it could be much, much worse for a swath of new potential defendants throughout the securitization pipeline and for the industry as a whole, according to one legal expert. The ACLU headed a group that filed suit in the U.S. District Court in New York on behalf of five Detroit residents. The lawsuit claims that Morgan Stanley pushed a unit of now-bankrupt New Century Financial Corp. to target minority borrowers for high-risk subprime mortgages. Between 2004 and 2007, Morgan Stanley “ramped up”...