At least on paper, two mortgage brokers in Georgia became instant millionaires last week with JPMorgan Chase’s settlement of their whistleblower lawsuit against the bank.
After six years in secretive litigation, however, the two men, Victor Bibby and Brian Donnelly, say they’re simply relieved the first settlement is behind them.
“It takes a lot of pressure off, that’s for sure,” Bibby told CNBC in an interview at his attorney’s office in Atlanta Tuesday. “I mean, we’ve been living with unbearable pressure for six years, been like we’ve been in a cooking pot for six years. So yeah, it’s a big relief.”
The two will share 26 percent of JPMorgan’s $45 million settlement, or just over $11 million. After splitting the proceeds with their lawyers and paying taxes, the two men will still have a significant amount of money left over. There are still as many of a half dozen banks involved in the litigation, representing millions more in potential settlements, as well.
The two men say they will “exit this business” now that they’ve come into serious money, but neither man seemed to know what they will do next. “I really haven’t given it any thought, to be honest with you,” said Bibby.
So how did two mortgage brokers from Alpharetta, Ga., land such a life-changing windfall?
The two men sued a half dozen or more banks for fraud, alleging that the banks defrauded military veterans in U.S. Department of Veterans Affairs home loans by hiding unallowable fees in mortgage documents. Under the whistleblower law, known as the False Claims Act, people who bring significant new information about fraud to the government’s attention can keep up to 30 percent of any final payment that results from their tips.
In Bibby and Donnelly’s case, the two say they spotted something unusual in VA home loans — banks hiding attorney’s fees by adding them to title examination costs on closing documents. Under VA rules, low-cost loans to veterans are not supposed to include attorney’s fees, but Bibby and Donnelly say they were often told by banks to simply lump those fees in with the title exam cost, forcing the veterans to pay anyway.
“We put thousands and thousands of hours and research on this case,” said Bibby. “We have thousands of documents of this fraud.”
How much money have vets unwittingly paid? “There's been over 1.2 million of these loans written and you've got anywhere between $300 and $1,500 per loan, so do the math, it's astronomical,” said Bibby.
Donnelly said he blames the government as much as the banks for allowing the situation to unfold.
“The VA has given these banks the authority to close these loans on an automatic basis. They don't oversee this program really, the VA doesn't,” he said. “They let the banks really police themselves, they've entrusted them to make sure this program is done correctly. And of course they haven't done that.”
The case is still pending against as many as a half dozen banks, including big names like Wells Fargo, Bank of America, and Citigroup'sCitiMortgage .
None of the banks contacted by CNBC had any comment on the litigation.
Although one bank has already settled, and the whistleblowers stand to become millionaires, the one group that will not see any money as a result of the litigation are the veterans themselves. The whistleblower case relates only to fraud against taxpayers — which Bibby and Donnelly say occurred because the banks didn’t follow the rules of the program by charging the inappropriate fees — and therefore doesn’t return money to the veterans who were defrauded.
That, Bibby and Donnelly’s attorney says, would require a separate class action suit on behalf of the veterans, or individual veterans checking their loan documentation and calling their lenders for a refund.
Contacted about the settlement last week, JPMorgan declined to comment.
In a statement to CNBC, a VA spokesman said, in part, “VA continually monitors the lending and servicing of all VA-guaranteed loans, and we audit all lenders. The strong performance of VA loans is a testament to our success in ensuring the loans are originated and serviced properly. For 12 quarters running, VA has had the lowest industry-standard seriously delinquent rate and the lowest foreclosure rate for 15 quarters running.”