The case has been brought under the False Claims Act by two mortgage brokers in Georgia, and has been under federal seal since it was filed in 2006 in U.S. District Court for the Northern District of Georgia. Cases brought under the act often remain under seal for years while they are investigated.
Three of the companies named in the suit — Wells Fargo, Bank of America and SunTrust Mortgage — declined to comment.
Speaking on background, representatives of two banks said the government’s decision to not intervene yet means the Justice Department does not think it’s a strong case. But Burns, whose organization monitors whistleblower cases, said the government’s decision to allow private law firms to take the lead was not unusual given limited resources for investigating alleged fraud.
“God help any bank that takes this case to trial,” Burns said. “A jury’s only question is going to be ‘How much do they have?’ ”
The suit includes as an exhibit a loan document in which Wells Fargo reported a $950 title examination rather than “a reasonable and customary fee” of between $125 and $200. Banks collected anywhere from $300 to $1,000 per loan in hidden fees by adding the prohibited charges to the allowable fees, according to the suit.
Bibby, one of the plaintiffs, is president and chief executive of U.S. Financial Services, a Georgia-based corporation that provides mortgage services in seven states. As brokers, Bibby and the company’s vice president of operations, Brian J. Donnelly, helped veterans choose lenders and complete the application forms. Since 2001, their company has helped set up thousands of the veterans’ refinancing loans, according to the suit.
In 2005, Donnelly said he read the rules in a VA handbook governing the fees that could be charged for the transactions, which are known as Interest Rate Reduction Refinancing Loans, or IRRRL loans.
Donnelly, who served three years in the Army, did further research and said became convinced that the charges were fraudulent. “We knew it was wrong,” he said.
“We started putting two and two together,” Bibby said. “It was kind of like a coconut hitting us on the head. They’re hiding it intentionally.”
Bibby and Donnelly said they approached the lenders, who insisted they were doing nothing wrong. The brokers reported their allegations to the U.S. government, providing copies of hundreds of “fradulent transactions.” Upon filing the whistleblower lawsuit, the court ordered the case sealed.
Earlier this year, Wells Fargo agreed to a $10 million settlement in a separate class-action lawsuit that alleged it improperly added attorney’s fees to about 60,000 refinancing loans for veterans.
Other companies named as defendants include CitiMortgage, Washington Mutual Bank, PNC Bank (which acquired National City Mortgage), Countrywide Home Loans, Mortgage Investors, First Tennessee Bank (which acquired First Horizon Home Loan), Irwin Mortgage and New Freedom Mortgage.
Staff writer Lisa Rein contributed to this report.
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