Ocwen Financial, formed in 1988, has been servicing residential mortgage loans since that year, and has serviced “subprime” mortgages since 1994. The company holds 671,623 residential loans worth more than $102.2 billion. The company also owns commercial assets totaling $290.9 million.
The False Claims Act (“FCA”) is a federal statute that allows whistleblowers, or “relators,” to bring qui tam lawsuits on behalf of the United States government and against their employers who are committing frauds against the government.
FCA lawsuits are filed “under seal” and the government has 60 days to elect to intervene. If the lawsuit is successful, and the government recovers money from a fraudulent contractor, the whistleblower who is the source of the information stands to take-home a considerable portion of the government’s recovery.
The Ocwen case was initiated by Michael Fisher, who was employed in the area of loan modification from 2008 until early 2012. During that time, he served as an assistant to attorneys at law firms in Industry, California and Southlake, Texas. Those attorneys assisted clients with obtaining modifications of their residential property mortgage loans from Ocwen and other lenders.
As a part of his job, Fisher regularly reviewed loan modification contracts for each law firm. Additionally, he reviewed and received hundreds of modification contracts from other law firms and companies. Between 2008 and 2011, Fisher alleges that Ocwen and its subsidiaries modified 200,000 home loan modifications.
In his complaint, Fisher alleged that Ocwen violated disclosures required by the Truth in Lending Act (“TILA”) while servicing subprime mortgages under the Home Affordable Modification Program (“HAMP”). In 2009, the U.S. Treasury Department rolled out the HAMP program to encourage lenders to modify home-secured loans. Under HAMP, loan service providers and borrowers received payments from the government in connection with granting the modification and keeping modified payments current.
Fisher alleged that Ocwen falsely certified its full compliance with HAMP regulations. Ocwen made false certifications that were material to payment by the United States. This theory of liability was recently brought before the U.S. Supreme Court by Greene LLP and approved in a unanimous 8-0 decision.
In its settlement, Ocwen will not admit any liability or wrongdoing. After reporting the settlement to the SEC, an analyst wrote in an investors note:
“Ocwen agreed to the settlement, notwithstanding its belief that it has sound legal and factual defenses, in order to avoid the uncertain outcome of two trials and the additional expense and management time involved. There can be no assurance that the settlement in principal will be finalized and approved by the United States and the Court. In the event the settlement in principal is not ultimate finalized and approved, the Fisher Cases would continue and we would vigorously defend the allegations made against Ocwen.”
This reasoning in favor of settlement is common among companies hit with FCA lawsuits. Ocwen said that it planned the $30 million charge associated with the settlement because the company believes “this amount is both probable and reasonable estimable based on current information.”
This suit is one in a series of crackdowns on fraudulent mortgage servicers. In May, the Justice Department sued Guild Mortgage over False Claims Act violations. Earlier this year, Wells Fargo agreed to a $1.2 billion dollar settlement in its own fight with the government over FCA violations.
In the wake of the sub-prime mortgage crisis, FCA cases alleging fraudulent mortgage practices have bubbled-up through courts across the country. While the fraud a whistleblower sees may not be as explicit as what Fisher experienced, consulting an experienced whistleblower attorney or an attorney who specializes in the False Claims Act will help evaluate and guide a potential whistleblower’s claim.
Whistleblowers who bring qui tam cases against companies that commit fraud against the government stand to not only disrupt immoral practices, but recover large financial rewards.