Friday, November 18, 2011

Fearing FCA Claims, Banks Delay Filing Claims with FHA to Cover Bad Loans

In contrast to the recent Allied Home Mortgage case reported on last week, banks are apparently getting smart about potential False Claims Act (FCA) liability when it comes to collecting on Federal Housing Administration (FHA) insurance for their failed FHA insured loans. In More on FHA:  Robo-Signing Effect , The Wall Street Journal Developments Blog observed this week that the FHA has millions more cash on hand than it probably should given the high failure rates of FHA insured loans.  The extra cash on hand results from the fact that although they are foreclosing on FHA insured loans, the banks are not submitting insurance claims for the bad loans to the FHA " because of the 'robo-signing' and other dubious back-office practices that surfaced last year."  Banks fear the  FCA and its treble damages if they submit to the FHA what could amount to a false claim for payment.  Accordingly, the WSJ Blog reports that banks will not submit an FHA insurance claim until they have "double- and triple-checked their processes to ensure that their reimbursement requests to Uncle Sam are iron proof. "

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