The Justice Department is disbanding a multiagency task force that has pursued litigation and fines against Federal Housing Administration lenders for many years.
And the election of Donald Trump likely signals that the new administration won't be as aggressive in pursuing False Claims Act cases against lenders as the Obama administration and Attorney General Loretta Lynch.
"The tone for these FCA cases came all the way from the White House," said Donald Lampe, a partner at Morrison & Foerster in Washington.
But he doubts the new president and new attorney general will put as much energy into FCA cases. If President Trump wants to "stimulate business and more lending, those kind of cases would not be a priority," Lampe said in an interview.
Meanwhile, the Mortgage Fraud Task Force that has operated during most of the Obama administration is disbanding. "So you won't have this central and multiagency Mortgage Fraud Task Force giving life to these cases," Lampe said.
David Stevens, the Mortgage Bankers Association's president and CEO, is looking for a new tone at the Justice Department.
"MBA hopes that the new attorney general will not follow the trend of this current DOJ regime, and will stop using the False Claims Act to pursue damages against lenders for minor, technical defects," Stevens said in a statement Monday.
Phillip Schulman, a partner in the law firm Mayer Brown in Washington, said he expects there will be less activity in the FCA arena with regard to mortgage lenders going forward.
"DOJ has waged an active campaign for over the past three years and there seems to be some scaling back anyway. This change in administrations will probably accelerate that trend," Schulman said.
"But we shall see. Obviously if there are bad actors out there or some heavy losses, I am sure the Justice Department won't look the other way," Schulman said in an interview.
Even if the Justice Department backs away, FHA lenders still have to contend with the HUD inspector general if they make bad loans.
The difference is that when HUD takes an action, it involves indemnification for loan losses. In a False Claims Act case, "DOJ is looking for multiple damages, multiple times the loss. So it is a much more expensive proposition," Schulman said.
There are still two active FCA cases where Quicken Loans in Detroit and Guild Mortgage in San Diego have refused to settle with the Justice Department.
It may be left to the new attorney general to decide whether to pursue or dismiss the holdouts. "It is hard to predict how the pending cases will play out," Lampe said.
An attorney for Quicken Loans declined to comment.
In September, Regions Financial in Birmingham, Ala., agreed to a $52.4 million settlement with the Justice Department.