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 http://twitter.com/laurenlacapra. >To submit a news tip, send an email to: firstname.lastname@example.org.