As part of the much-publicized $26 billion mortgage foreclosure settlement between the five largest mortgage lenders, 49 states attorneys general, and the United States, Bank of America has agreed to pay $1 billion to resolve False Claims Act allegations relating to its mortgage lending practices. According to the press release issued by United States Attorney for the Eastern District of New York Loretta E. Lynch, federal prosecutors had been investigating Bank of America since 2009.

There appear to have been two aspects to the False Claims Act allegations against Bank of America and Countrywide Financial, which Bank of America acquired in 2008. The first allegation was that Countrywide submitted false claims by knowingly making loans insured by the Federal Housing Administration to unqualified buyers. The second allegation relates to Countrywide’s alleged practice of originating FHA-insured loans based on inflated appraisals.  Even though neither Countrywide nor Bank of America would be considered “government contractors,” their lending practices were alleged to violate the False Claims Act. It’s an important lesson as to the reach and breadth of this fraud-fighting tool.

The $1 billion settlement represents the largest-ever False Claims Act recovery relating to mortgage fraud. Half of the recovery will be used to compensate losses sustained by the FHA.  The second half of the recovery is being deferred and will be used to fund a loan modification program for Countrywide borrowers.