ATLANTA – A whistleblower lawsuit launched in 2006 and unsealed Tuesday in federal court in Atlanta claims several large banks and mortgage companies defrauded military veterans and taxpayers out of hundreds of millions of dollars in a "brazen scheme" to hide illegal fees.
The lawsuit, brought under the Federal Claims Act by two mortgage brokers, claims the 13 banks and mortgage firms over-charged veterans who were applying for special home loans guaranteed by the Department of Veterans Affairs.
Federal rules allow the lenders to charge "reasonable and customary" fees and taxes, the lawsuit said, but they are barred from charging them attorneys' fees and settlement closing costs for the loans. The firms skirted the rules by charging attorneys' fees by hiding them as "title examination" or "title search" fees, it said.
Veterans were ultimately saddled with "excessive and illegal fees at closing," the complaint said.
The lawsuit targets several firms, including Wells Fargo, JPMorgan Chase & Co. and Bank of America. Several of the firms did not immediately return messages late Tuesday seeking comment on the lawsuit. A Bank of America spokesman declined to comment. The banks have denied the allegations in related court documents.
The lawsuit was initially filed in 2006, but attorneys say it's common for these types of complaints to remain sealed for years while they are being investigated. It seeks to recover damages and penalties on behalf of the federal government, which said in court records that it wouldn't intervene.
The fees weren't necessarily linked to the global
More than 1.2 million of the refinanced loans have been made to veterans and their families over the past decade, and up to 90 percent of them were tainted with the alleged fraud, plaintiff's attorneys said. The firms collected $300 to $1,000 with each deal, which could amount to "massive damages" to the federal government, the complaint said.
"This is a massive fraud on the American taxpayers and American veterans," said James E. Butler, Jr., one of the attorneys who brought the case.
"Knowing they weren't allowed to charge the fees, the banks and mortgage companies inflated allowable charges to hide these illegal fees without telling the veterans who were the borrowers or the VA they were doing so."
Washington – Despite significant improvement in US financial markets since 2008, the economic recovery is “close to faltering,” Federal Reserve Chairman Ben Bernanke told a joint congressional panel on the US economic outlook on Tuesday.
After dramatic interventions to resolve the financial crisis that broke out in the fall of 2008, there are no silver bullets for a swifter recovery, beyond a willingness to â€œtake further action as appropriate,â€
New economic data signal a recovery even weaker than previous estimates. In the first half of the year, the nation’s gross domestic product increased at an average rate of less than 1 percent. Over the summer, private sector jobs increased by only about 100,000 jobs per month, and public sector jobs continued to drop. Moreover, new home construction – the engine of previous recoveries – was sputtering at only about a third of its average in recent decades.
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Then, there’s debt crisis in Greece and other eurozone countries that’s a “significant source of stress in global financial markets,” also rattling consumer and business confidence, he said.
Closer to home, Mr. Bernanke criticized Congress for contributing to an uncertain business climate with last summer’s debt-limit debate, which raised the prospect of a first-ever US default on its national debt.
â€œUnfortunately the brinksmanship of the summer and at least perception in the minds of some investors that the United States might actively consider defaulting on its debt, and moreover, the possibility that this might be recurring periodically, I think was a negative for the financial markets,â€
â€œIt was the reason that the downgrade occurred, that the S&P cited the political process more than the amount of debt outstanding. It's no way to run a railroad, if I may say so,â€
Congress’s Joint Select Committee on Deficit Reduction, created as part of the debt-ceiling deal, has been tasked with cutting $1.5 trillion in deficits over the next 10 years. It’s a substantial step, Bernanke said. “However, more will be needed to achieve fiscal sustainability.”
“Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the US economy,” he added. “Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector.”
As the recovery stalled, the independent central bank became a target both on the left and the right. Tea party conservatives, led by Rep. Ron Paul (R) of Texas, blamed the Fed for weakening the nation’s currency and prospects. More recently, Gov. Rick Perry (R) of Texas, a presidential candidate, dubbed Bernanke’s conduct as chairman “almost treasonous.” House Republican leaders last month wrote a letter to Bernanke urging the Fed to avoid more stimulus measures.
“Do you have any other arrows in your quiver at this point?” asked Rep. Michael Burgess (R) of Texas, a member of the House tea party caucus. “Have most of them already been used? Is the only arrow you have left the printing press?”
“We do have tools,” said Bernanke. “But obviously we want to evaluate the costs and benefits of any decisions we take, and we want to make sure that the economy is getting the appropriate amount of stimulus from us.”
At the same time, some voices on the left look to the Fed to take more dramatic moves. Sen. Bernie Sanders (I) of Vermont called on Bernanke to provide massive, low-interest loans to small businesses. “If you during the financial crisis provided $16 trillion dollars to banks all over the world, why are you not providing the kinds of money that small businesses now desperately need so they can expand and create jobs?" he asked.
“It’s not our role, and we do not have the authority to make general loans to the broader economy,” Bernanke responded.
The latest Fed move, modest by recent standards, aims to purchase $400 billion of six- to 30-year US Treasury securities by the end of June 2012, then sell an equal amount of short-term Treasury securities set to mature in three years or less. This “maturity extension program” will not change the Fed’s balance sheet, but should “put downward pressure on longer-term interest” rates and encourage growth. “It’s a significant step, but not a game changer in some respects,” he told Congress.
“He’s not dismissing action by the Fed, but he’s not announcing it either,” said Stan Collender, a congressional budget analyst with Qorvis Communications in Washington. “It’s a prudent position for an economic policymaker to take given the volatility in the market. “
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NEW YORK/ROME (Reuters) – Moody's Investors Service cut Italy's bond ratings by three notches on Tuesday, saying it saw a "material increase" in funding risks for euro zone countries with high levels of debt.
Moody's downgraded Italy's ratings to A2 from Aa2, a lower rating than that of Estonia, and kept a negative outlook on the rating, a sign that further downgrades are possible within the next few years.
The move comes after Standard and Poor's cut its rating on Italy to A/A-1 from A+/A-1+ on September 19 and underlines growing investor uncertainty about the euro zone's third largest economy, which is now firmly at the center of the debt crisis.
"The negative outlook reflects ongoing economic and financial risks in Italy and in the euro area," Moody's said in a statement.
"The uncertain market environment and the risk of further deterioration in investor sentiment could constrain the country's access to the public debt markets," it said.
Moody's also said that Italy's rating could "transition to substantially lower rating levels" if there were long-term uncertainty over the availability of external sources of liquidity support.
Italy's mix of chronically low growth, a huge public debt amounting to 120 percent of gross domestic product and a struggling government coalition has caused mounting alarm in financial markets.
The Moody's decision came as little surprise after the agency said on September 17 that it would finish a review for possible downgrade of its rating on Italy within a month.
"It's not that it was unexpected, but it doesn't help the situation at all," said Robbert Van Batenburg, Head of Equity Research, at Louis Capital in New York.
"They have already traded as if there was somewhat of a downgrade in the works, so it will probably force Italian policymakers to embark on more austerity programs. It will put another fiscal straitjacket on them," he said.
Moody's said the likelihood of a default by Italy was "remote," but the overall shift in sentiment on the euro area funding market implied a greater vulnerability to a loss of market access at affordable interest rates.
Italy's borrowing costs have soared over the past three months and have only been kept under control by the European Central Bank's purchase of its government bonds on secondary markets.
An auction of long-term bonds last month saw yields on 10 year BTPs rise to 5.86 percent, their highest level since the introduction of the euro more than a decade ago.
The center-right government of Prime Minister Silvio Berlusconi has been under heavy pressure over its handling of the escalating crisis and recently cut its growth forecasts through 2013.
It is now expecting the economy to expand by just 0.6 percent next year, down from a previous projection of 1.3 percent.
The government last month pushed through a 60 billion euro austerity package -- bringing forward by one year to 2013 a goal to balance its budget -- in return for support for its battered government bonds from the ECB.
(Reporting by Walter Brandimarte and Daniel Bases In New York, Catherine Hornby and James Mackenzie in Rome; Editing by Gary Crosse)