Lawsuit claims banks bilked veterans on refinances

A whistleblower lawsuit filed by two mortgage brokers has been unsealed in Federal District Court claiming that 13 banks and mortgage companies have cheated veterans out of hundreds of millions of dollars, National Mortgage News reported.

According to the lawsuit, lenders allegedly hid illegal fees in veterans’ home mortgage refinancing transactions related to the Interest Rate Reduction Refinancing Loans program (IRRRL). This program was created to allow veterans to take advantage of low interest rates and protect them from paying excessive fees and charges in the refinancing transaction.

The lawsuit claims that the lenders repeatedly violated the rules of the IRRRL program by charging veterans unallowable fees and then deliberately concealing this information from the VA to obtain taxpayer-backed guarantees for the loans. The lenders also allegedly falsely certified to the VA, in writing, that they were not charging unallowable fees, National Mortgage News reported.

In the lawsuit, the brokers are claiming that the lenders have been fraudulently reporting on HUD-1 statement forms undisclosed attorneys fees and other unallowable fees on the line for the actual cost of title examination and title search. The lawsuit says that lenders are reportedly charging $525 to $1,200 for title examination and title search fees, when the total cost should only amount to $125 to $200.

Lenders are permitted to charge veterans for recording fees and taxes, fees for a credit report and other “reasonable and customary amounts,” according to VA rules, but cannot charge attorneys’ fees or settlement closing fees in refinancing transactions involving VA loans.

“The false statements and fraudulent conduct are blatant,” said Marlan Wilbanks, co-lead counsel in this whistleblower case. “The banks simply reduced the charges for unallowable fees to zero, and then added those fees in the spaces where allowable fees were to be shown. Veterans don’t know what the usual and customary charges for those allowable fees are, and the VA understandably relied upon the banks to comply with VA regulations, rather than digging into every loan transaction. The banks took advantage of that reliance to cheat veterans and taxpayers.”