Federal court unseals rare False Claims Act complaint against home mortgage servicer

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In Brief

  • The complaint claims lender OneWest falsely certified that it made required disclosures to homeowners, leading the federal government to pay more than $200 million in false claims.
  • OneWest acquired its loan portfolio from the failed IndyMac Bank, which collapsed amid the financial crisis in 2008.

The U.S. District Court for the Southern District of New York recently unsealed a complaint filed against lender OneWest Bank FSB (“OneWest”) by a whistleblower, marking a rare False Claims Act (“FCA”) case brought in the financial services sector.

The complaint in United States ex rel Fisher v. OneWest Bank FSB, No. 12-09352 (S.D.N.Y.) alleges that OneWest repeatedly falsely certified that it would, or did make, required disclosures to consumers in connection with its participation in the Home Affordable Modification Program (“HAMP”). The complaint alleges that OneWest’s resulting fraudulent claims caused the government to pay more than $200 million.

OneWest got its start in 2009 with its acquisition from the Federal Deposit Insurance Corporation (“FDIC”) of IndyMac Bank FSB (“IndyMac”). IndyMac was seized by the FDIC in July 2008 after it failed due to its enormous portfolio of underperforming mortgages. IndyMac’s assets – approximately $32 billion – made it one of the largest bank failures in U.S. history.

After acquiring IndyMac, OneWest agreed in September 2010 to participate as a servicer for HAMP, a role it continues today. HAMP was instituted by the Obama administration in 2009, with the goal of preventing struggling borrowers from defaulting on their home mortgages. Under the program, servicers and other parties involved in loans secured by homes receive financial incentives from the government in return for modifying the terms of the loans to keep borrowers out of default. Like other HAMP servicers, OneWest agreed that it would make all required disclosures to borrowers under laws such as the Truth in Lending Act (“TILA”), and it periodically certified that it had in fact made these disclosures.

The complaint alleges that OneWest “typically failed to disclose anywhere in the modification agreements” various terms such as the finance charge, the annual percentage rate, or the total amount of payments. Further, it claims OneWest “virtually always” added new debt to the borrower’s balance, averaging about $17,000 per contract. This was allegedly done without any itemizations or disclosures that would have revealed the actions taken. By modifying loans without making the necessary TILA disclosures, while at the same time certifying that it had made these disclosures and accepting government incentives, OneWest allegedly made false claims under the FCA that caused the government to pay out over $206 million. Of this total, more than $58 million went directly to OneWest as the servicer for the loans.

The qui tam complaint was brought by Michael J. Fisher, a former employee of two law firms in California and Texas whose clients sought loan modifications from OneWest and other servicers. The case was unsealed after the federal government declined its option under the FCA to intervene in the action.

 

Topics:  False Claims Act, Mortgage Servicers, Mortgages

Published In: Business Torts Updates, Civil Remedies Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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