Some of the nation’s largest banks and mortgage firms, including a subsidiary of an Atlanta-based bank, made millions of dollars hiding illegal fees when thousands of veterans refinanced home loans, according to a federal lawsuit unsealed this week.
Two whistle-blowers -- both from metro Atlanta -- filed the lawsuit in 2006 in U.S. District Court in Atlanta on behalf of the federal government. The suit seeks to recoup unspecified damages and penalties.
More than a dozen major lenders, including Wells Fargo, Bank of America and SunTrust Banks subsidiary SunTrust Mortgage, defrauded veterans and the government through mortgage loans guaranteed by the Department of Veterans Affairs, according to allegations contained in the suit.
“They gouged the veterans and then cheated the taxpayers,” Columbus lawyer Jim Butler said Tuesday. “We’re talking about hundreds of millions of dollars lost by taxpayers.”
The alleged fraud went on for a decade or more and involved loans issued across the country, he said.
Under the law, the U.S. Justice Department can intervene to take over the case, but has not so far. But the U.S. attorney in Atlanta left the door open to doing so.
“The government has not yet made a decision about whether to intervene in this case,” U.S. Attorney Sally Yates said. “As the case develops, we will continue to evaluate the merits of the case, and will consider intervening in the case at a later date if it becomes appropriate to do so.”
The lawsuit was originally filed by the whistle-blowers, metro Atlanta mortgage brokers Victor Bibby, president of U.S. Financial Services, and Brian Donnelly, vice president of the firm.
Spokesmen for SunTrust and Bank of America declined to comment, as did a spokeswoman for Wells Fargo Home Mortgage.
The suit claims the lenders engaged in a “brazen” fraud scheme. The scheme involved a program allowing veterans who already owned homes with a Veterans Affairs loan to refinance so they could take advantage of low interest rates.
Because the loans were for veterans, were for lower refinancing payments and were guaranteed by taxpayers, the conditions of the loans and the amount of fees imposed by the lender were strictly limited, the suit said.
The fees that can be charged in these loans -- called Interest Rate Reduction Refinancing Loans -- cannot include attorneys fees, said Atlanta lawyer Marlan Wilbanks, who also represents the whistle-blowers.
Although veterans were prohibited from paying attorneys fees, the lenders were free to pay those fees, he said.
Instead, the lenders hid the attorneys fees by listing $400 to $1,000 for those fees under “title examination fees,” Butler said.
“They were charging, on average, $500 to veterans that was illegal,” Butler said.
Federal regulations also prohibit the VA from guaranteeing these loans when a lender has imposed illegal fees, but by hiding the fees the lenders deceived the government into backing the loans, the suit said.
The government guarantees up to 25 percent of the value of each loan in the event of default.
The suit claims the lenders “submitted hundreds of thousands of false and fraudulent documents” to get the government to guarantee the loans. Tens of thousands of the loans are in default, the suit contends.
“Their guarantees were secured by fraud,” Wilbanks said. “It affects the taxpayer because when these loans go bad or into default, the government begins spending money.”
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