Four Whistleblowers Who Sounded the Alarm on Banks' Mortgage Shenanigans

by Cora Currier ProPublica,   March 15, 2012, 4:46 p.m.

Buried in the sweeping mortgage settlement with banks, for which final documents were filed this week, are five whistleblower cases that shed light on the litany of foreclosure abuses by the banks.

According to one suit, Bank of America allegedly passed on bad loans to the Federal Housing Authority. In another, the bank allegedly denied qualified homeowners access to HAMP, the government's loan modification program.

The suits were all settled as part of the overall $25 billion mortgage deal. They were filed under the False Claims Act, which provides incentives for whistleblowers to come forward in cases where someone has defrauded the government. Whistleblowers can net up to 25 percent of the total settlement from False Claims suits, and in some of these cases, the reward is in the millions.

Details are available for four of the cases; documents in a fifth, against JP Morgan Chase, have not yet been filed in Massachusetts. While the cases were settled as part of the overarching agreement, they still have to be accepted by the courts in which they were originally filed. In reaching the settlements, none of the banks admit or deny the lawsuits' allegations.

We've laid out the details of each case.

Countrywide Defrauded the FHA

Countrywide CEO Angelo Mozilo

Kyle Lagow worked at LandSafe, a contractor of Countrywide, which Bank of America bought in 2008. He brought a suit in 2009 alleging that the company systematically undermined the appraisals process for home loans in order to approve as many as possible.

The result was bad loans passed on to the FHA for insurance, while Countrywide was later able to file millions in claims from the FHA. (Read the complaint, which has plenty of juicy details.)

Lagow alleges that much of the appraisal staff were not properly trained, and that in many cases, the appraisal was being done by a developer, KB Homes, which had a stake in making sure the loans closed.

Countrywide pressured LandSafe to blacklist appraisers with whom KB Homes "had too many issues." (KB Homes did not respond to requests for comment.)

Lagow's complaints were ignored or challenged.

He also says that he was fired for bringing the issue to Countrywide executives. Lagow's suit was settled for $75 million, and was a component of the Federal Housing Authority's $1 billion settlement with Bank of America over FHA insurance. Documents detailing his cut of the $75 million haven't yet been filed. Bank of America did not respond to requests for comment.

Rampant Robosigning at Bank of America, Wells Fargo, JP Morgan and Citi
Lynn Szymoniak, a lawyer, was facing foreclosure in 2008 when she received what she believed were fake documents from her bank. She began an investigation and eventually filed another false claim suit against the country's four largest mortgage servicers.

Szymoniak's suit is still sealed, but she told 60 Minutes last year about a mystery woman, "Linda Green," who appeared to be the vice president of 20 different banks and whose signature varied on the thousands of mortgage documents she had supposedly signed. Szymoniak also discovered what she called a "sweatshop" company, Docx, which forged signatures on thousands of mortgage documents (The banks Szymoniak names told 60 Minutes that Docx was hired by subcontractors. The company has since been shut down).

Her suit settled for $95 million, and she will receive $18 million. JP Morgan Chase declined to comment, and Wells Fargo and Bank of America did not respond to our inquiries. A spokesman for Citi declined to respond to the specific allegations, but said that Citi "is making every effort to ensure that no foreclosure goes forward based on an inaccurate or defective affidavit."

JP Morgan Chase Hid Fees from Veterans Program

James "Jamie" Dimon, chief executive of J.P. Morgan Chase

Two employees at a Georgia mortgage broker alleged in a suit filed last summer that JP Morgan, along with Bank of America, Wells Fargo, and Citigroup, scammed a program that is supposed to make it easier for veterans to get loans. The banks hid fees that would have disqualified loans from the program, lumping them in with other items on the clients' bill, and then submitted fraudulent documents to the government for reimbursement under the veterans program:  Read their full complaint.

JP Morgan settled for $45 million dollars. The two whistleblowers, Victor Bibby and Brian Donnelly, told Reuters that they would together receive $11 million. They also said they would continue their case against the other banks. JP Morgan declined to comment.

Bank of America Cut Qualified Homeowners Out of HAMP

Bank of America CEO Brian Moynihan

Gregory Mackler worked at Urban Lending, a company contracted by Bank of America to handle HAMP requests. His suit, filed last summer, alleges that Bank of America actively sought to reduce the number of people who qualified for the government's loan modification program, HAMP, pushing instead the bank's (often less affordable) proprietary loan modifications. This approach saved Bank of America money, but cost homeowners. (Read the complaint.)

Mackler's complaint describes many ways that Bank of America, through Urban Lending, allegedly disqualified homeowners for HAMP.

Payments were intentionally processed incorrectly so that they would be deemed late.

Houses that were owner-occupied were declared not so by "drive-by" inspections.

In some instances, Countrywide started foreclosure proceedings on homeowners who had been told they were "under review" for HAMP modifications. (ProPublica has also detailed many similar instances.) And the customer advocates assigned to HAMP customers didn't have access to the information that they needed.

When Mackler raised concerns with Bank of America executives, the suit alleges, he was ignored or told that Bank of America was "not of course interested."

According to the suit, Mackler was fired "in retaliation" in March 2011. Bank of America also did not respond to our requests for comment.

The suit settled for $6.5 million, and Mackler's cut is not yet finalized.

Click to have a look at Bank of America's historical stock price.

A Hookah Pipe Dream

Me, with beard and hoodie, dressed to fit in with OWS

I’m growing a beard. My wife doesn’t like it. She turns her head when I go to kiss her. “It’s prickly,” she complains. Well, I’m feeling prickly. I don’t like what I see in the American political or business arenas. So I’m growing the beard in solidarity with the Occupy Wall Street (OWS) folks. I’m not sure what they don’t like, although articulating their complaints seems to be high on the list.

There are several things I don’t like, and I’m sure if I wandered around an OWS camp like James ‘ACORN’ O’Keefe (he takes photos of people misbehaving), I’d find common ground on many of them. For example, I don’t like James O’Keefe.

But let’s stick to the theme. How do I loath thee, Wall Street, let me count the ways.

• I don’t like banks taking TARP money and then paying their executives huge bonuses.
• I don’t like financial institutions like Goldman Sachs cheating investors.
• I don’t like the lack of public and quasi-public oversight of our financial institutions.
• I don’t like the executives of companies that led the American economy down the garden path to the dump going unpunished.
• I don’t like corporations being people -- they’re so antisocial.

A judge just threw out the Securities and Exchange Commission's proposed $285m settlement with Citigroup, which was accused of misleading investors in one of those toxic mortgage schemes at the peak of the US housing bubble. If I recall correctly, he called the amount of the fine, “rounding error” for Citigroup.

The SEC is supposed to be riding herd on Wall Street, but it’s letting the bulls run and feeding the rest of us manure. The SEC has had a longstanding practice of levying relatively minor financial settlements alongside de facto waivers of civil liability for the guilty. “Wealth management institutions,” as they like to call themselves, commit fraud and pay small fines, and the SEC allows them to walk away without admitting to criminal wrongdoing. Nice work if you can get it, and you can, and that brings me to my next dislike.

I hate the fact that no one went to jail. AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley were run by people involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. And the aforementioned Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. No one has been indicted, let alone gone to jail. And no one was watching. And that brings me to my next dislike.

I don’t like the total ineptitude of the Federal Reserve, the FDIC, the Office of the Comptroller of the Currency, and the Commodity Futures Trading Commission, and other federal institutions, including the Justice Department. Justice is blind, only not in a good way.

And then there’s our Congress. So much to dislike and so little space to rail about it. But let’s stay with the theme -- Wall Street. Because running for office in the House and Senate requires raising obscene amounts of campaign cash, and because special interests are willing to contribute said cash, we have encouraged a system of legalized bribery. Wall Street leverages that system (Wall Street likes the word ‘leverage’), and the revolving door between the Fed and employees of Wall Street -- once you were a crook, now you’re a regulator -- to preempt and/or weaken regulatory reform, such as the Dodd-Frank bill.

The only way we’re going to solve the problem of a bought and paid for Congress is to institute a system of publicly funded elections -- no 527s, PACs, Super PACs, Pack-of-Money of any kind, soft, squishy, slimy, or otherwise. No endless robocalls at all hours. None, nada. This is what OWS should be demanding, but that brings me to my last dislike.

I dislike the search-and-destroy partisanship in Congress that makes campaign finance reform a hookah pipe dream.

Given the likelihood of any of these dislikes being addressed by Congress anytime soon, the OWS folks, and my beard, may be around for a while.

Sorry honey.