Massachusetts Senator Elizabeth Warren has announced that she is seeking information concerning the federal government's decision to settle false claims brought by mortgage servicing companies to the Federal Housing Administration (FHA). Specifically, Warren says she is interested in more information about how the government reached the settlement amount, a number that appears to only scratch the surface of the liability faced by the servicers.
Senator Warren released a letter that she submitted to Attorney General Eric Holder last month asking for information about the terms of the settlement as well as an accounting of what payments have so far been made to the FHA as part of the settlement. Warren says that she has serious concerns about the adequacy of the settlement given the currently unstable financial footing of the FHA.
Warren says that she sat in on meetings about the financial vulnerability of the FHA, which led her to wonder why the federal government was so willing to go along with such a cheap settlement. The fear of Warren and others is that the settlement with mortgage servicing companies may be an example of lax enforcement by the Department of Justice against the country's major financial institutions.
While Warren acknowledges that settlements are an integral part of any effective enforcement strategy, it is critical that the government avoid rushing to an early settlement that undervalues the extent of harm suffered. Warren points out that to maintain leverage it is essential that the government not settle claims too early as such a quick settlement can leave victims and taxpayers on the hook.
The settlement that Warren is discussing was reached last year by the Department of Justice, attorneys general from 49 states and the five largest mortgage servicing companies in the country. The services agreed to pay $225 million to be released from any False Claims Act liability that resulted from their submission of false mortgage insurance claims to the FHA and other agencies. A portion of the settlement is meant to be given to the FHA to shore up its operating fund.
According to Warren, estimates indicate that while $225 million may sound like a lot of money, it's a drop in the bucket. According to publicly available information, the settlement represents only 0.6 percent of the total liability faced by the mortgage servicers. Warren notes that the banks submitted over 92,000 claims to the FHA during the period in question totaling over $12 billion. The total liability faced for defrauding the government could reach $37 billion, thus begging the question why the Justice Department was so keen to settle. Delaying settlement might have resulted in a substantially larger payout, which could be used to help support the troubled FHA and other agencies that were hit hard by the housing crisis. The hope is that by drawing attention to the matter the government might be less likely to reach such quick settlements in the future.
Sources:
Senator Warren Investigates False Claims Submitted to the FHA, published at LoanSafe.org., posted by Alex Ferreras on September 5, 2013
Warren Asks DOJ to Explain 'Timid' FHA Settlement, by Peter Schroeder, published at TheHill.com., on August 21, 2013
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