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Recent weeks have seen two major events forcing the mortgage lenders of the Federal Housing Administration (FHA) to scratch their heads in assessing the government's fraudulent intentions. FHA offers mortgage insurance for loans approved by the FHA. There are two parts to a mortgage.

The Civil False Claims Act and FIRREA: Miscellaneous assertion signs for FHA mortgage lenders

Recent week's two important incidents have forced the mortgage lenders of the Federal Housing Administration (FHA) to scrape their feet in judging the government's fraudulent intent. Firstly, in mid-September, a county court magistrate passed severe False Claims Act (FCA) and Financial Institutions Reform, Recovery, and enforcement Act of 1989 (FIRREA) damage and punishment on respondents of FHA mortgage lenders in an annoying account of the paralyzing effects that companies and individual persons may suffer that are reflected in the objectives of both FCA and IRREA civilian anti-fraud measures.

View United States v. Americus Mortgage Corp. No. 4:12-CV-2676, 2017 WL 4117347 (S. D. Tex. Sept. 14, 2017) (Allied). Secondly, less than a months later, the Trump Administration signalled what seemed like a withdrawal to many when the secretary of the Department of Housing and Urban Development (HUD), Ben Carson, said to Congress and industrial groups that HUD personnel were working with the Ministry of Justice to tackle and solve the "ridiculous" Escalation in government use of the FCA against mortgage lenders.

What about mortgage lenders who are considering staying or joining the nationally insured mortgage market? Indeed, Secretary Carson's views are not incompatible with those of former HUD secretaries who have realised that post hoc efforts by the Ministry of Justice and relatives (as well as HUD-OIG) to use "fraud" labeling on routinely lending and litigating are counter-productive to HUD's missions and unjust for lenders.

What is strange about Minister Carson's commentary is that he made it very publicly. It is likely that cases like Allied will go on until law enforcing initiative is modified in the Ministry of Justice - or changes are ordered by Congress. However, there are still some take-aways for FHA lenders due to these mixes.

The government has achieved varying degrees of progress in prosecuting common FCA and FIRREA cases against banks and individual persons. Yet, in perhaps its highest profiled case to date including FCA and FIRREA causes of suit against Bank of America and Countrywide, the government had to forfeit its FCA allegations and then later had a panel judgment and $1. 2 billion FIRREA fine inverted by the second circuit because of the government's failure to bear its evidence load.

As most cases were solved or solved on other questions, very few cases were brought before the judicial authorities to investigate the interaction between FCA damages/sanctions and FIRREA sanctions in the same case. This is what makes the case of the Allies so significant, even at the regional jurisdiction levels. Allied' was instituted by the U.S. Attorney's Office for the Southern County of New York (SDNY) as a positive EZV and FIRREA lawsuit for allegations of improper credit practices by the FHA.

In the aftermath of the lawsuit, the panel decided that Allied Capital, Allied Corporation and the company's chief executive officer were held responsible by Allied. Subsequently, the County Tribunal decided a combined and individual $291,898,325 in triple damage and fines under the FCA and a further $2,200,000 (per defendant) in FIRREA fines. Whilst tripling the FCA damage is no big shock as the law prescribes it, other issues of the court's ruling are important as they mirror basic misunderstandings regarding the FCA, FIRREA and the way the FHA loans operate.

Firstly, although the Regional Supreme Court properly approved the standards of "immediate causality" for EZV allegations, at least in name, the Supreme Tribunal gave jurors directions that in practice permitted the panel to use the much more forgiving "but for" causality assessment. Also, the tribunal declined to further analyse whether the government's evidences actually backed a determination of immediate causality, rather than the notion that, but for the initial subscription and approval, a right to FHA cover had not been filed month or year later, regardless of whether there were unrelated grounds for the failure of the loans.

By refusing to take into account the real causes of the non-performance of the credit, the Tribunal is distorting the damage and undermining the objective of requiring the Government to demonstrate that its damage was directly due to the allegation of mishandling. In particular, the Seventh Circle made an important choice on this issue after the Allied ruling.

The United States v. Luce, No. 16-4093, 2017 WL 4768864 (7 Cir. 23 October 2017), the Supreme Tribunal lifted its own case setting example (which had advocated "but for" causing in FCA cases) and followed every other circle in deciding the matter by finding that the immediate cause was the correct one.

Secondly, the Bezirksgericht in Allied has needlessly entered into the discussion about tripling "gross" versus "net" under the FCA. Although the government's own specialist has computed the " net " HUD incurred as a result of the defaulting loans, and although the triple indemnity seems to have been awarded by the tribunal on the basis of the " net " indemnity estimate, the Court's own ruling clearly refuses to accept the net tripling as an appropriate amount of indemnity in FCA cases.

Had the intention of the Tribunal been to advocate a "rough" damage method in FCA cases, this would also lead to distortion of the damage and wind case reclaims (beyond merely tripling) for the Government. Thirdly, and perhaps most importantly, the granting of damages/sanctions by the courts is worrying because it inflicted sanctions on both FCA and FIRREA for probably the same behaviour.

Whilst the Tribunal tried to prevent such criticism and concern about the'excessive fines' by adopting the Government's reasoning that the FIRREA sanctions resulted from the Allies' incorrect yearly FTA adherence certificates, while the FCA infringements are due to behaviour in lending, this differentiation has no relevance in the FHA loans environment where injuries or damages relate to one thing: a defaulting FHA loans.

Thus, the damage and punishments held by the County Supreme Tribunal will be used only to encourage the lawyers and relatives of the Ministry of Justice. HUD Secretary Carson gave a testimony about "The Future of Housing in America" at a hearings before the House Financial Services Committee on 12 October 2017: Supervision of the Department of Housing and Urban Development.

There is a great piece from July's Housing wire, by David Stevens of the Mortgage Bankers Association (MBA), and he speaks about the unparalleled application of the False Claims Act by HUD and the Department of Justice from about 2011 under President Obama. So I believe that you and Prosecutor General Jeff Sessions could readily resolve this issue and the consequences of abusing the False Claims Act to inflict shameless punishments on lenders for intangible deficiencies in FHA lending deeds.

Many lenders have abandoned the FHA programme and the ones that have remained in the programme are making it more expensive for the borrower who can least affort it. Having confirmed that he was very conversant with the subject, Minister Carson replied: The Congressman, Mr Trott, answered Secretary Carson's reply and recommended to him a "simple way forward that could be implemented without Congress action", which had been devised by the MBA and involved a revision of the FHA certifying adage.

Secretary Carson reiterated similar views at the MBA Annual Conference on 23 October 2017 and noted: Some members of the lending syndicate have expressed concern that they should participate fully in our programmes as they identify excessive risk from a failure to understand what we are expecting and from excessive liabilities arising from intangible error.

We have listened to these objections and today I am very happy to inform you that HUD, in agreement with the Ministry of Justice, has undertaken to examine and address these questions. Whilst no suspension of EZV proceedings against FHA lenders (as requested by the MBA in June 2017) has been heralded, it will be seen over the next few months whether Secretary Carson's comments are a sign that EZV and/or FIRREA action against mortgage lenders will ease the tide.

DJ D's stance on civilian anti-fraud measures against FHA lenders is still ambiguous, particularly with regard to Secretary Carson's references to "bad actors" - a tag that JJ has, in one way or another, given to most FHA lenders. Moreover, the story of the Ministry of Justice, which is about taking execution measures against FHA lenders, even if there is clear proof of simultaneous HUD awareness and support for the practice and achievements of these lenders, indicates that it may not be straightforward for the Ministry of Justice and HUD to coordinate their view.

Creditors should not have to resort to ex-post remedies (as provided for in the Supreme Court ruling in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016)) to clarify their name. Indeed, if HUD really wants to motivate lenders to participate in the federal mortgage insurance markets and service lenders who are not otherwise eligible for traditional credit, lenders need clear and explicit approval from the Department of Justice for any new approaches to creditor certification and defective taxes.

Meanwhile, it can be assumed that the Allied damage award (although not yet under review, let alone upheld by a review court) will promote more EZV and FIRREA accusations and disputes.

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