United States ex rel. Mitchell v. CIT Bank

Decision Date16 March 2022
Docket NumberCivil Action 4:14-CV-00833
PartiesUNITED STATES OF AMERICA ex rel. ANDREW MITCHELL, AND ANDREW MITCHELL, Individually, Plaintiffs/Relators, v. CIT BANK, N.A., d/b/a ONEWEST BANK, and CIT GROUP, INC., Defendants.
CourtUnited States District Courts. 5th Circuit. United States District Court of Eastern District Texas
MEMORANDUM OPINION AND ORDER

AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

Pending before the Court is Defendants' Motion for Summary Judgment Under Federal Rule of Civil Procedure 56 (Dkt #178). Having considered the motion and the relevant pleadings, the Court finds that the motion should be DENIED.

BACKGROUND
I. Factual Background

In the wake of the 2008 financial crisis, the Treasury Department created the Home Affordable Modification Program (“HAMP”) to incentivize mortgage servicers (i.e entities like OneWest Bank (“OWB”))[1] to initiate mortgage modifications to prevent avoidable foreclosures (Dkt. #265 ¶ 1). HAMP sought to create a partnership between the Government and loan investors and loan servicers to reduce the monthly mortgage payments of at-risk homeowners (Dkt. #178 at p. 11).

In addition to “Treasury” HAMP, the Government created HAMP equivalents for the Department of Housing and Urban Development (“HUD”)'s Federal Housing Administration (“FHA”) mortgage insurance program and the Department of Veterans Affairs (“VA”)'s mortgage insurance program, known respectively as FHA-HAMP and VA-HAMP (Dkt. #265 ¶ 1). The FHA mortgage-insurance program was designed to expand home ownership by incentivizing lenders to lend to borrowers who otherwise would not qualify for loans (Dkt. #178 at p. 12). FHA-HAMP was added as an additional step in the loss mitigation process to provide further assistance to homeowners with FHA-insured loans who were unable to meet their mortgage payments ((Dkt. #265 ¶ 35). Similar to FHA-HAMP, VA-HAMP was implemented in 2010 to stem the tide of foreclosures among veterans who purchased homes guaranteed through the VA Home Loan program (Dkt. #265 ¶ 84). The addition of FHA-HAMP and VA-HAMP was essential because many FHA and VA homeowners are first-time and low-credit homebuyers and are among the most vulnerable homeowners (Dkt. #265 ¶ 2).

Treasury HAMP, FHA-HAMP, and VA-HAMP were designed to be a win for all parties (Dkt. #265 ¶ 4). Distressed homeowners who qualified for loan modifications could stay in their homes for a lower monthly payment and, in some cases, received assistance from the Government in making their payments (Dkt #265 ¶ 4). Investors received payments and a guarantee that no modification would result in a mortgage less than the net present value of their property (Dkt. #265 ¶ 4). And mortgage servicers like OWB, in addition to payments received from the investor, received HAMP incentive payments from the Government for successful modifications (Dkt. #265 ¶ 4). Additionally, in the case of FHA loans, servicers also retained the right to submit insurance claims to the Government for their losses when homeowners defaulted (Dkt. #265 ¶ 4).

In 2009, OWB enrolled in the Treasury HAMP, FHA-HAMP, and VA-HAMP programs (Dkt. #265 ¶ 5). Like all other servicers in the program, OWB was required to execute a Service Participation Agreement (“SPA”) to participate in HAMP (Dkt. #178 at p. 13). The SPA also required OWB to provide annual certifications of compliance (Dkt. #178 at p. 14). OWB expressly represented in the SPAs and annual certifications that: (1) it was in compliance with the terms and guidelines of HAMP; (2) it was in compliance with all applicable laws and requirements;[2] (3) it created and maintained an effective HAMP program and committed the resources needed to employ enough trained, experienced personnel with the tools and technology necessary to provide quality service to homeowners; and (4) it had adequately documented and monitored its compliance and immediately reported to the Government any credible evidence of material violations of these certifications (Dkt. #265 ¶ 73). Each annual certification included an express statement certifying that OWB continued to meet the terms and conditions of the SPA, including the representation of compliance with applicable laws (Dkt. #265 ¶ 75).

As with the Treasury HAMP program, OWB was required to submit annual certifications to participate in the FHA insurance program (Dkt. #178 at p. 20). The certifications require program participants to represent their compliance with a broad range of HUD regulations, which include certain loss mitigation measures (Dkt. #187 at p. 20). For example, HUD expects servicers to review borrowers for loss mitigation within ninety days of delinquency and initiate foreclosures within six months of default unless the borrower qualifies for loss mitigation (Dkt. #178 at p. 21). Further, HUD's loss-mitigation program requires servicers to consider delinquent borrowers for loss mitigation in a specific priority order (Dkt. #178 at p. 21).

Like Treasury HAMP and FHA-HAMP, servicers participating in VA-HAMP were required to evaluate defaulted mortgages for traditional loss mitigation actions before evaluating them for VA-HAMP relief (Dkt. #265 ¶ 86). The VA also requires servicers to report certain loan servicing events through an electronic web-based system called VALERI (Dkt. #265 ¶ 91). When making manual submissions of loan-related events through VALERI, the servicer is required to certify that “the information provided . . . is accurate to the best of your knowledge and is substantiated by the accompanying documentation and proper justification” (Dkt. #265 ¶ 91).

Despite OWB certifying that it was in compliance with the terms of these programs, Relator Andrew Mitchell (Mitchell), a former loss-mitigation specialist at OWB from 2009-2011, alleges that OWB knew it was not in legal compliance (Dkt. #265 ¶ 91). Thus, according to Mitchell, OWB's allegedly false certifications caused the Government to make hundreds of millions of dollars in federal insurance claims and incentive payments to OWB that it would not otherwise have made (Dkt. #265 ¶ 6).

For example, as to Treasury HAMP, Mitchell alleges that OWB engaged in widespread dual tracking, continuously moving homeowners' mortgages into and through the foreclosure process even as OWB was supposed to be evaluating the mortgages for loss mitigation options and HAMP (Dkt. #265 ¶ 147). According to Mitchell, OWB's dual tracking led many homeowners to lose their homes in foreclosure when foreclosure should have been suspended during the resolution of modification and other workout processes (Dkt. #265 ¶ 152). Mitchell further alleges that OWB knowingly lacked adequate HAMP systems, processes, staffing, and training (Dkt. #265 ¶ 154). Though OWB's programmatic failures were known within the company, Mitchell claims that OWB executives declined to fix the problems, leading many wrongful HAMP denials and wrongful foreclosures to occur (Dkt. #265 ¶¶ 154-162).

As to FHA-HAMP, Mitchell alleges that OWB knowingly failed to implement any loss mitigation evaluation system whatsoever and failed to evaluate homeowners for the program itself, despite its affirmative obligation to do so (Dkt. #265 ¶ 7). More specifically, Mitchell alleges that OWB's subservicer, LoanCare, failed to contact or respond to delinquent homeowners about their potential modifications and engaged in impermissible modifications (Dkt. #265 ¶¶ 97-100). And, after being alerted to the violations, Mitchell alleges OWB hid them from HUD officials rather than disclosing and resolving the issues (Dkt. #265 ¶ 102). Along the same lines, after a HUD audit identified specific instances of noncompliance with HUD's rules, OWB was required to remedy the identified noncompliance. Mitchell alleges, however, that OWB lied to HUD auditors to give the appearance of progress, though it knew it was still not performing loss mitigation (Dkt. #265 ¶¶ 106-110). Further, according to Mitchell, because OWB's FHA loan portfolio accounted for a small percentage of its mortgage servicing business, OWB management knowingly deprived the FHA portfolio of the time, attention, and resources needed to run a compliant servicing operation (Dkt. #265 ¶¶ 112). According to Mitchell, these deficiencies resulted in loans not being evaluated on time (if at all) as well as improper modifications on the rare occasions where a modification was completed (Dkt. #265 ¶ 120).

Finally, as to VA-HAMP, Mitchell alleges that OWB ignored its VA mortgage portfolio unless homeowners called to complain, allowing veteran homeowners to languish for up to three years without receiving a proper modification and forcing many into foreclosure (Dkt. #265 ¶ 138). And, prior to 2011, OWB had no loss mitigation program in place for VA loans (Dkt. #265 ¶ 139). Instead, on the rare few occasions that OWB purported to perform loss mitigation evaluations on VA loans, Mitchell claims OWB evaluated the loans under more stringent FHA-HAMP standards, rather than the VA-HAMP standards. This led to veteran homeowners receiving fewer modifications and suffering more foreclosures (Dkt. #265 ¶ 140).

In contrast to Mitchell's allegations, OWB paints a far different story as to its efforts and compliance with these programs. According to OWB, notwithstanding industrywide difficulties, publicly available service assessments and third-party reviews show that OWB was one of the highest-rated servicers participating in HAMP (Dkt. #178 at p. 18). Further, though Treasury had the power to withhold incentives for HAMP non-compliance, Treasury never did so and consistently paid HAMP incentive payments to OWB until the program expired (Dkt. #178 at p. 19). Regarding FHA-HAMP, while OWB acknowledges that 2010 and 2015 HUD audits revealed instances of noncompliance, it...

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