Mortgage Lawsuit Claims Banks Defrauded Military Vets

ATLANTA -- A whistleblower lawsuit launched in 2006 and unsealed Tuesday in federal court in Atlanta claims several large banks and mortgage companies defrauded military veterans and taxpayers out of hundreds of millions of dollars in a "brazen scheme" to hide illegal fees.

The lawsuit, brought under the Federal Claims Act by two mortgage brokers, claims the 13 banks and mortgage firms over-charged veterans who were applying for special home loans guaranteed by the Department of Veterans Affairs.

Federal rules allow the lenders to charge "reasonable and customary" fees and taxes, the lawsuit said, but they are barred from charging them attorneys' fees and settlement closing costs for the loans. The firms skirted the rules by charging attorneys' fees by hiding them as "title examination" or "title search" fees, it said.Veterans were ultimately saddled with "excessive and illegal fees at closing," the complaint said.

The lawsuit targets several firms, including Wells Fargo, JPMorgan Chase & Co. and Bank of America. Several of the firms did not immediately return messages late Tuesday seeking comment on the lawsuit. A Bank of America spokesman and a Wells Fargo Home Mortgage spokeswoman declined to comment. The banks have denied the allegations in related court documents.

The lawsuit was initially filed in 2006, but attorneys say it's common for these types of complaints to remain sealed for years while they are being investigated. It seeks to recover damages and penalties on behalf of the federal government, which said in court records that it wouldn't intervene.

More than 1.2 million of the refinanced loans have been made to veterans and their families over the past decade, and up to 90 percent of them were tainted with the alleged fraud, plaintiff's attorneys said. The firms collected $300 to $1,000 with each deal, which could amount to "massive damages" to the federal government, the complaint said.

"This is a massive fraud on the American taxpayers and American veterans," said James E. Butler, Jr., one of the attorneys who brought the case.

"Knowing they weren't allowed to charge the fees, the banks and mortgage companies inflated allowable charges to hide these illegal fees without telling the veterans who were the borrowers or the VA they were doing so."

Copyright 2011 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

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