Anti Trust Arriving For Tech Should The Industry Be Concerned?

For years, Foreclosurepedia has submitted that the entirety of the Mortgage Field Services Industry, controlled predominately by the National Association of Mortgage Field Services (NAMFS), has been a safe haven for Sherman Act and Copeland Act violators. There is absolutely no doubt that the sliding scale of rebating demanded by firms such as Safeguard Properties, Mortgage Contracting Services (MCS), Laudan Properties, et al., are problematic under the Copeland Act, 18 U.S.C. § 874. The Copeland Act specifically makes criminal mandatory discounting with the following language,

Whoever, by force, intimidation, or threat of procuring dismissal from employment, or by any other manner whatsoever induces any person employed in the construction, prosecution, completion or repair of any public building, public work, or building or work financed in whole or in part by loans or grants from the United States, to give up any part of the compensation to which he is entitled under his contract of employment, shall be fined under this title or imprisoned not more than five years, or both.

There is no doubt that the demanded discounts from Mortgagee Letter pricing has the potential of trespassing upon the Copeland Act. And for years, NAMFS members have known about this.

In 2003, NAMFS members gathered at US Department of Housing and Urban Development‘s (HUD) headquarters, in Washington DC, in order to ensure that their absolute power and control would be blessed by a select few within HUD.

NAMFS members met with Leslie Bromer, then a HUD Policy Specialist and now Senior Consultant to the Collingwood Group and Richard Dunne, a lower ranking HUD official then and now the Team Lead / Organizational Policy Planning and Analysis Division at HUD. Representing NAMFS were,

NAMFS founder John Ward whose previous firm Ward & Associates later went on to become First American; Gail Bradshaw; Jenny Ruth Nix; Ray Washington; Richard Law, SOFI Founder; John Cahill, SIRS; Dan Buczek representing SIRS and Buczek Enterprises; Kevin Cook; and Joe McCloskey.

Minutes written by NAMFS Founder, John Ward, whom then owned Ward & Associates which later went on to become First American, were exclusively obtained by Foreclosurepedia. Those minutes described, in explicit detail, how NAMFS Members entered into contractual understandings with HUD officials with specificity to what may only be characterized as bid rigging, in my opinion. Let me explain this in the way in which only a trained media professional such as myself may do. Here is the quote from John Ward’s 2003 Minutes,

NAMFS asked specifically if the contractor providing a bid is being approved and must provide the service or if the amount of the bid to provide the service is being approved. Both Leslie Bromer and Richard Dunne confirmed that the amount to provide the service was being approved. Once the amount is approved the mortgage servicer is free to assign the job to whomever they wish. At this point NAMFS raised the potential for an approved estimate to be “shopped” around by a national contractor. Once the amount is approved to the national contractor they can go out and have the site provider re-bid the job thus expanding their margins on the approved amount beyond industry standard discounts. Richard Dunne expressed that he does not believe that that is taking place given the time restraints on completion. Mr. Dunne indicated that if that could be done, then it would be considered good business by HUD and no violation or impropriety. The amount was approved and HUD considers that to be the acceptable cost to them. If the job can be produced for less, that is efficiency. At this point Richard Law indicated that his procurement background with the government leads him to believe that it is clearly inappropriate as costs were not being fully disclosed to HUD, the ultimate purchaser.

The devil is in the details as the always say. All federal contracting generally requires two things. First, there must be an honest and transparent representation of expense to the US Government. Second, The Truth in Negotiations Act, known as the Truth in Negotiations Act, 10 U.S.C. § 2306a, 41 U.S.C. § 254b, commonly referred to as TINA, requires contractors who are negotiating certain government contracts — e.g., sole source contracts where there is no established “market price” for the good or service — to submit cost and pricing data to the Government that is truthful, accurate, and complete. In combination with TINA, the False Claims Act (FCA), was enacted as a reaction to rampant fraud and price gouging by merchants supplying the Union army during the Civil War.” United States ex rel. Customs Fraud Investigations, LLC. v. Victaulic Co., 839 F.3d 242, 247 (3d Cir. 2016). The Act is “the Government’s primary litigative tool for combating fraud.” Olson v. Fairview Health Servs. of Minnesota, 831 F.3d 1063, 1069 (8th Cir. 2016). The Supreme Court, however, noted in Escobar that the FCA is “‘not an all-purpose anti-fraud statute,’ … or a vehicle for punishing garden-variety breaches of contract or regulatory violations.” Escobar, 136 S. Ct. at 2003 (citation omitted). Rather, the FCA creates civil and criminal penalties for those who submit certain false or fraudulent documents to the federal government, whether claims for payment or documentation concerning delivery of goods or services. Following is a discussion of the statute, the elements that must be proven for liability to attach, how an enforcement action might proceed, and how damages are calculated.

The question which presents is why are NAMFS Members allowed not to present the best offer to the US Government? Moreover, though, why is the Mortgagee Compliance Manager (MCM) not performing proper oversight up HUD – FHA work orders.

NAMFS Members are opting for higher bids which they proffer to HUD – FHA while in the capacity as an agent of the US Government. In fact, what is taking place is that a National provider solicits several bids and opts for the higher to submit while possessing the lower bids. Here is how a recent Qui Tam Whistleblower lawsuit characterized these actions,

This is an action for treble damages and civil penalties arising from Defendants’ concerted use of the nationwide housing market collapse and resulting foreclosures to defraud the United States federal government (the “Government” or “United States”) of well over $100 million by engaging in unlawful and fraudulent bidding practices, including deliberate bid rigging, in connection with the performance of preservation services for properties insured by the Federal Housing Administration (“FHA”) and the Department of Veterans Affairs (“VA”), as well as for properties with mortgages that are owned or guaranteed by government-sponsored and/or related entities, including the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), the Government National Mortgage Association (“Ginnie Mae”) and the Federal Housing Finance Agency (“FHFA”)(collectively, the “GSEs”).

As detailed below, [Redacted] sought to maximize government reimbursements by submitting fraudulent and grossly excessive bids for its property preservation services to its bank-mortgagee clients, including U.S. Bank, as well as, to the best of Relator’s knowledge, information and belief, Bank of America, Ocwen Financial Corporation, Sterling Bank, Taylor, Bean & Whitaker, Towne Mortgage Company and, more recently, Wells Fargo & Company, as well as other similarly situated financial institutions, which then present [Redacted] fraudulent bids to the U.S. Department of Housing and Urban Development (“HUD”) and/or other Government entities, as well as the GSEs, for reimbursement.

Notwithstanding the requirements of and independent bidding required by the Government, including HUD and the VA, as well as the GSEs, [Redacted] systematically and routinely manipulated contractor bids before submitting them for approval through U.S. Bank and other banking servicers, fabricated bids to present the illusion of a competitive bidding environment, and consistently decreased payments to its contractors while falsely claiming that such adjustments were made directly by HUD, the GSEs or other Government entities. [Redacted] undertook these fraudulent bidding practices to extract the maximum reimbursement amount from HUD, the GSEs and other Government entities based on the submission of false claims.

As a result of these fraudulent bidding practices and submissions, HUD, the GSEs and other Government entities have accepted higher bids for work than they should or otherwise would have, thereby causing the Government to pay grossly excessive monies for property preservation services each year.

By devising an ongoing scheme to manipulate the bidding process for its property preservation services and submitting the resulting fraudulent bids to U.S. Bank and other similarly situated banking institutions, which ultimately submitted those bids to HUD, the GSEs and other Government entities for reimbursement, Five Brothers has violated the FCA, including as amended by the Fraud Enforcement and Recovery Act (“FERA”), by causing U.S. Bank and similarly situated financial institutions to present false and fraudulent claims for payment to the Government. [Redacted] senior management knowingly allowed and actively encouraged these fraudulent bidding practices.

Had the United States been aware that the bids were grossly excessive and the result of Five Brothers’ fraudulent bid manipulation scheme in an attempt to extract the highest monetary reimbursements possible from HUD, the GSEs and other Government entities, the United States would not have accepted the fraudulent bids and paid the excessive amounts submitted by Five Brothers for its property preservation services.

As volumes have dramatically decreased and as financial institutions, government sponsored enterprises, and the US Government all have more time to dedicate to auditing the post 2008 Wild Wild West Crisis, we are hopeful that the US Attorney General and the US Department of Justice will begin to pay particular attention not only to the blatent fraud, with respect to chargebacks, but also to the improprieties which are occurring at a wholesale level fleecing the US Taxpayer.

While many might bemoan regulation, the reality is that the Mortgage Field Services Industry has never had regulation. And in the instant case, now is the time to be at the forefront of their promulgation. And if you believe that regulation is not coming to the Industry, I suggest you take off the blinders. For those whom attacked Foreclosurepedia stating that Dynamex — the California Supreme Court case and soon to be AB5 legislation stating all Industry Contractors are employees — would never come to fruition, I recommend they look precisely how far it has now spread. The federal judiciary in Georgia has now certified Inspectors as a class and demanded millions more be added to the suggested settlement there.