This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

U.S. Probes Banks' Mortgage Practices

Others point out that it's unclear Fannie and Freddie guarantees are covered by the False Claims Act, even if their losses have been covered by federal funds. Joel Androphy, a partner at Berg & Androphy, doesn't think passing federal funds through such a guarantor crosses the threshold for qui tam prosecution.

"It would have to be a large scale fraud," he adds, "since the DOJ cannot handle the current load of FCA health fraud and defense contractor cases."

Still, if the Justice Department does find evidence of wide-scale fraud and does decide to pursue cases at mortgage lenders, the stakes are high.

In a successful False Claims Act prosecution, the government is entitled to so-called "treble" damages - meaning three times the funds used fraudulently. As an example: Say a bank is found to be complicit in a $100,000 fraudulent mortgage loan that was insured by the Federal Housing Administration. Even if the government recoups $70,000 by selling the property, the bank would be liable for $230,000 -- three times the original loan, minus the recouped funds -- even though the actual loss is $30,000.

"It's quite a draconian statute," says Feinberg. "If a bank systematically did this with many, many homes - as we're seeing now with the loans Fannie and Freddie are trying to push back - the damages could be astronomically high."

On the bright side, the Justice Department appears willing to work with lenders that comply with investigations and have taken steps to remedy problems. For instance, Tim McCormack, an attorney who works on False Claims Act cases at Phillips & Cohen in Washington, D.C, suspects the Justice Department wouldn't peg prosecutions to banks' recent "robosigning" woes.

"Where's the harm?" says McCormack. "Substantive harm vs. procedural harm, I think, would make a key difference. The Department of Justice doesn't have enough resources -- and I can't imagine Congress allocating enough resources - to go after purely procedural flaws if the companies can show that they sort of mended their ways and have taken steps to fix them"

Miller, the Justice Department spokesman, says the agency has a history of working hard to consider the consequences of its prosecutions on defendants as well as plaintiffs. He says prosecutors have worked to forge affordable settlements with hospitals in small communities that committed "severe and serious fraud" -- as long as they implement practices that protect federal funds in the future.

"That's not a bank, but just an example of how we will work to try not to put a business under," he says.

-- Written by Lauren Tara LaCapra in New York.

>To contact the writer of this article, click here: Lauren Tara LaCapra.

>To follow the writer on Twitter, go to

>To submit a news tip, send an email to:
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
5 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $17.48 0.23%
BZH $14.67 0.96%
C $54.22 0.26%
JPM $67.22 0.54%
WFC $55.43 0.38%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs