The Huffington Post reported late yesterday that five of the country's largest mortgage lenders may have defrauded taxpayers by filing false claims with the Federal Housing Administration (FHA). Confidential audits conducted on Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Ally Financial (formerly GMAC) provided information which has now been referred to the Department of Justice for a decision on filing charges.

The author of the article, Shahien Nasiripour, said the Inspector General (IG) of the Department of Housing and Urban Development (HUD) conducted five separate investigations in February and March and concluded that the banks filed false claims against the Federal Housing Administration, a violation of the False Claims Act, a Civil War-era law.

According to the Huffington Post, "The resulting reports read like veritable indictments of major lenders, the sources said. State officials are now wielding the documents as leverage in their ongoing talks with mortgage companies aimed at forcing the firms to agree to pay fines to resolve allegations of routine violations in their handling of foreclosures.

"The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents."

Apparently Bank of America and one other company refused to cooperate with the investigations but the BoA audit finds that the company failed to correct faulty foreclosure practices even after imposing a moratorium that lifted last October. Back then, the bank said it was resuming foreclosures, having satisfied itself that prior problems had been solved.

The Huffington Post quoted a federal official as saying that most of the targeted banks have not seen the audits but they are generally aware of the findings.

The HUD actions are the latest in a series of investigations, discussions, and proposed settlements between lenders and mortgage servicers arising out of the housing and foreclosure crisis.  Earlier this week the New York Attorney General Eric T. Schneiderman was said to have requested documents and requested "discussions" with three major banks apparently regarding the institution's securitization activities prior to the crisis (FULL STORY).  A task force composed of the 50 state attorneys general has been negotiating a settlement with major mortgage servicers, most of which are owned by the major banks, over claims of wrong doing related to foreclosures.

Also according to the Huffington Post, this week the mortgage servicers under investigation by the attorneys general offered $5 billion to set up a fund to help distressed borrowers and settle claims of inappropriate foreclosures.  "That offer -- also floated by the Office of the Comptroller of the Currency in February -- was deemed much too low by state and federal officials.  Associate U.S. Attorney General Tom Perrelli, who has been leading the talks, last week threatened to show the banks the confidential audits so the firms knew the government side was not "playing around," one official involved in the negotiations said. He ultimately did not follow through, persuaded that the reports ought to remain confidential, sources said. Through a spokeswoman, Perrelli declined to comment."

The Huffington Post article is available at http://www.huffingtonpost.com/2011/05/16/foreclosure-fraud-audit-false-claims-act_n_862686.html