Mortgage Fraud: Federally Insured Loans and False Certification
Mortgage fraud becomes a False Claims Act matter when a lender falsely certifies that a loan met FHA, VA, or USDA underwriting requirements. When such a loan defaults, the government pays the insurance claim, making the original certification a false claim.
The government insures, so the government loses
FHA, VA, and USDA programs insure or guarantee loans made by private lenders. The lender certifies at origination that underwriting met program requirements.
If the certification was false and the loan later defaults, the government pays a claim it would not have insured. That sequence is the damages theory, and it produced some of the largest False Claims Act recoveries after the financial crisis.
Where the certifications fail
Origination and quality control are where these cases live.
- Income, employment, or asset documentation not verified as required
- Debt-to-income ratios manipulated to fit program limits
- Appraisals influenced or selected to reach a target value
- Underwriter overrides not documented or not permitted
- Quality control reviews that identified defects and were not reported
- Failure to self-report materially defective loans as the program requires
Quality control staff are the key witnesses
Programs require lenders to run quality control and to self-report materially defective loans. A lender that found the defects and did not report them has a documented internal record showing exactly what it knew.
That is why QC analysts and underwriters make such strong relators here. The evidence was created by the compliance function itself.
Servicing is also covered
Certifications made in loss mitigation, foreclosure, and claims submission also support liability, including misrepresenting compliance with HAMP or other modification program requirements and submitting insurance claims on loans serviced outside program rules.
Frequently asked questions
Does the loan have to default?
For the damages theory to work, generally yes, because the government loss occurs when it pays the insurance claim. The false certification happens at origination.
I work in quality control and my findings were ignored. Is that a case?
Very possibly, and it is one of the strongest fact patterns in this area, because the lender created its own record of knowledge.
What about FIRREA?
FIRREA may also apply where a federally insured financial institution was affected. The two statutes are sometimes pursued together.
The attorneys who handle these cases
Related reading
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