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
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