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Date Published
September 28, 2015
News Type
Press Release
Link to Original
USAO, Eastern District of New York

Suit Alleges that Purported Charity Concealed Problem Lenders from Federal Housing Administration

(Source: USAO, Eastern District of New York) Kelly T. Currie, Acting United States Attorney for the Eastern District of New York, David A. Montoya, Inspector General for the Department of Housing and Urban Development, and Frederick W. Gibson, Acting Inspector General for the Federal Deposit Insurance Corporation, announced the filing of a civil suit against the Rainy Day Foundation, Inc., a purported charitable “counseling fund,” together with its associated business entities and principals.  The case was filed today in federal court in Central Islip and has been assigned to United States District Judge Joseph F. Bianco.

The complaint alleges that in at least 865 instances, the Rainy Day Foundation, together with five Eastern District of New York-based mortgage lenders and their principals, defrauded the United States and various banks insured by the Federal Deposit Insurance Corporation (“FDIC”), resulting in millions of dollars of mortgage losses, and requiring the United States to pay over $5,605,237 in false claims.

The defendant mortgage lenders participated in a federal program sponsored by the United States Department of Housing and Urban Development (“HUD”) that allowed the lenders to make mortgage loans that are insured by the Federal Housing Administration (“FHA”) in the event of default.  The defendant mortgage lenders then sold those loans to federally-insured banks.

The complaint alleges that the mortgage lenders’ loans went into “early payment default” at more than twice the average default rate of other lenders, and that the lenders conspired with the Rainy Day Foundation to conceal their high default rates from HUD to avoid removal from HUD’s program.  Specifically, the defendant mortgage lenders funneled their own money through the Rainy Day Foundation to make defaulting borrowers' monthly payments to the banks in order to conceal the defaults from HUD and the banks.  When the loans had aged beyond the bank’s contractual right to force repurchase, or past the period that HUD monitored for early payment defaults, the lenders would stop making payments, leaving the borrowers without any further support...