Bank of America Settles Massive Mortgage Fraud Lawsuit for $16.65 Billion

Xinyi Teng, a Chinese immigrant and former Bank of America employee, played a central role in the $16.65 billion mortgage fraud settlement between the bank and the U.S. Department of Justice. Teng's whistleblowing efforts led to the uncovering of widespread mortgage fraud and foreclosure practices within the bank.

Background

The mortgage fraud crisis, which reached its peak in 2007-2008, involved the fraudulent origination and securitization of subprime mortgages. These mortgages were often issued to high-risk borrowers with poor credit or unstable income, and many were based on inflated or fraudulent appraisals.

Bank of America was among the largest issuers of subprime mortgages during this time, and the bank's practices were heavily criticized. Teng, who worked as a mortgage underwriter at the bank, witnessed firsthand the rampant fraud that was taking place. She reported her concerns to her superiors, but they allegedly ignored her allegations.

Teng's Whistleblower Lawsuit

In 2012, Teng filed a whistleblower lawsuit under the False Claims Act, alleging that Bank of America had knowingly originated and securitized fraudulent mortgages. The lawsuit claimed that the bank had violated federal lending laws and caused massive losses to the U.S. government, which insured many of the mortgages through Fannie Mae and Freddie Mac.

The lawsuit detailed specific instances of fraud, including:

• Mortgages with inflated appraisals
• Loans issued to borrowers who did not meet underwriting standards
• Improper mortgage modifications and foreclosures

The Settlement

In February 2014, Bank of America settled the lawsuit for a record-breaking $16.65 billion. The settlement included $7.8 billion in civil penalties and $8.85 billion in consumer relief. The consumer relief included:

• Payments to borrowers who were wrongfully foreclosed
• Modifications to underwater mortgages
• Refunds to borrowers who were charged excessive fees

Teng's role in the settlement was recognized by the U.S. government. She was awarded $3.2 million from the settlement proceeds, the largest whistleblower award in history at that time.

Impact of the Settlement

The Bank of America settlement was a major victory in the fight against mortgage fraud. It sent a clear message to the financial industry that fraudulent practices would not be tolerated. The settlement also helped to restore confidence in the mortgage market and the U.S. economy.

The settlement also had a significant impact on Bank of America. The bank was required to implement sweeping reforms to its mortgage lending practices. These reforms included:

• Stricter underwriting standards
• Increased transparency in mortgage documentation
• Independent audits of mortgage loans

Tips and Tricks for Whistleblowers

Teng's story serves as an inspiration for whistleblowers who are considering reporting fraud or other wrongdoing. Here are some tips and tricks for whistleblowers:

• Document your evidence. Keep a record of all evidence of wrongdoing, including emails, documents, and witness statements.
• Be discreet. Do not discuss your allegations with others until you have spoken to an attorney.
• Seek legal advice. An experienced whistleblower attorney can provide you with guidance and support throughout the process.
• Be prepared for retaliation. Whistleblowers often face retaliation from their employers. Be prepared to take legal action if necessary.

Why Whistleblowing Matters

Whistleblowing is essential for holding corporations and government agencies accountable for fraud and wrongdoing. Whistleblowers play a vital role in protecting the public interest and ensuring the integrity of our financial system.

Benefits of Whistleblowing

Whistleblowing can provide significant benefits to both the individual whistleblower and society as a whole. These benefits include:

• Financial rewards: Whistleblowers can receive financial compensation for reporting fraud or wrongdoing.
• Protection from retaliation: Whistleblowers are protected from retaliation by their employers under federal and state laws.
• Justice: Whistleblowing can help to bring wrongdoers to justice and prevent future fraud.
• Public safety: Whistleblowing can expose dangerous or harmful practices that put the public at risk.

Pros and Cons of Whistleblowing

While whistleblowing can have significant benefits, it is important to consider the potential risks and challenges as well.

Pros of Whistleblowing

• Financial rewards: Whistleblowers can receive financial compensation for reporting fraud or wrongdoing.
• Protection from retaliation: Whistleblowers are protected from retaliation by their employers under federal and state laws.
• Justice: Whistleblowing can help to bring wrongdoers to justice and prevent future fraud.
• Public safety: Whistleblowing can expose dangerous or harmful practices that put the public at risk.

Cons of Whistleblowing

• Retaliation: Whistleblowers may face retaliation from their employers, including termination of employment, demotion, or harassment.
• Emotional stress: Whistleblowing can be a stressful and emotionally draining experience.
• Public scrutiny: Whistleblowers may face public scrutiny and criticism, especially if their allegations are controversial.
• Potential legal liability: Whistleblowers may face legal liability if their allegations are false or defamatory.

FAQs

1. What is the False Claims Act?

The False Claims Act is a federal law that prohibits individuals and companies from knowingly submitting false or fraudulent claims to the government for payment.

2. Who is considered a whistleblower under the False Claims Act?

A whistleblower is an individual who provides information about fraud or wrongdoing to the government.

3. What are the requirements for filing a False Claims Act lawsuit?

To file a False Claims Act lawsuit, the whistleblower must have:

• Original information about fraud or wrongdoing
• Evidence to support their allegations
• A strong belief that the fraud is material, meaning it has a significant impact on the government

4. What are the potential penalties for violating the False Claims Act?

Individuals and companies that violate the False Claims Act can face significant penalties, including:

• Civil fines of up to $11,000 per false claim
• Treble damages, meaning the government can recover three times the amount of damages it suffered
• Criminal penalties, including imprisonment

5. What is the whistleblower reward program?

The whistleblower reward program is a federal program that provides financial rewards to individuals who report fraud or wrongdoing to the government. Whistleblowers can receive a reward of up to 30% of the amount recovered by the government.

6. How can I protect myself from retaliation if I am a whistleblower?

Whistleblowers are protected from retaliation by their employers under federal and state laws. If you are a whistleblower who has been retaliated against, you can contact the Equal Employment Opportunity Commission (EEOC) or the Occupational Safety and Health Administration (OSHA).

7. What are the benefits of whistleblowing?

Whistleblowing can provide significant benefits to both the individual whistleblower and society as a whole. These benefits include:

• Financial rewards
• Protection from retaliation
• Justice
• Public safety

8. What are the risks of whistleblowing?

While whistleblowing can have significant benefits, it is important to consider the potential risks and challenges as well. These risks include:

• Retaliation
• Emotional stress
• Public scrutiny
• Potential legal liability

Conclusion

Xinyi Teng's whistleblower lawsuit against Bank of America was a major victory in the fight against mortgage fraud. Her courage and determination helped to uncover widespread fraud and foreclosure practices within the bank. The settlement sent a clear message to the financial industry that fraudulent practices would not be tolerated.