Mortgage cases to test US use of once-obscure fraud statute

Jan 17 (Reuters) – Banks are testing U.S. authorities’ use of a once-obscure statute to bring more cases tied to the financial crisis, arguing the government is twisting the law beyond what it can do.

In a motion to dismiss a federal case alleging mortgage misconduct, Wells Fargo said late Wednesday the government was essentially trying to argue that the bank defrauded itself under one of the laws at issue, FIRREA.

Bank of America is also fighting a recent lawsuit from the U.S. Attorney’s Office in Manhattan alleging some $1 billion in losses to Fannie Mae and Freddie Mac , partly by arguing those institutions also don’t qualify as affected firms under FIRREA.

Courts are expected to weigh in later this year on the issue in both cases. If they side with the banks, it could limit a key Justice Department tool promoted as a way to bring big civil cases against misconduct that fueled the 2007-2009 crisis.

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