February 25, 2012 / 12:45 AM / 7 years ago

Whistleblower accuses Countrywide of appraisal fraud

(Reuters) - A former Countrywide Financial employee alleges the lender fraudulently inflated appraisals used for government-insured home loans, according to a complaint unsealed on Friday in U.S. District Court in New York.

The whistleblower complaint appears to be related to a $1 billion settlement announced February 9 between Bank of America Corp (BAC.N), which bought Countrywide in June 2008, and the U.S. Attorney’s Office in the Eastern District of New York.

Federal prosecutors said they had been investigating Bank of America and Countrywide since 2009 for knowingly making loans insured by the Federal Housing Administration to unqualified borrowers. They also said they probed allegations that the bank and Countrywide defrauded the FHA by originating loans based on inflated appraisals.

The $1 billion False Claims Act settlement was part of the $25 billion pact reached by five major lenders, state attorneys general and the U.S. Department of Justice over foreclosure-related abuses. Final settlement documents have not yet been filed in the False Claims Act case or in the global settlement.

The U.S. Attorney’s Office for the Eastern District of New York declined to comment on Friday.

According to the unsealed complaint, the whistleblower, Kyle Lagow, witnessed first-hand the “corrupt underwriting and appraisal process” at the lender. Lagow worked in a Countrywide appraisal unit in Plano, Texas, from June 2004 to November 2008, according to the complaint.

An attorney for Lagow, Steve Berman, did not return a call seeking comment. Bank of America did not immediately provide comment.

Under the False Claims Act, a successful complaint can earn a whistleblower up to 25 percent of the settlement amount. In a case unveiled last week, a Citigroup Inc (C.N) employee in Missouri is set to receive $31 million of the $158 million the bank agreed to pay over claims it misled the government into insuring thousans of risky home loans.

The False Claims Act is a federal law designed to recover money taken from the government by fraud, and discourage further wrongdoing. Filings on Friday did not indicate whether the government has agreed to join Lagow’s case.

Reporting By Rick Rothacker; Editing by Gary Hill

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