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Banks accused of defrauding veterans on mortgages

(Photo: CNN) (Photo: CNN)

(CNN) - Bank bailouts and debit card fees have been a source of anger for the Occupy Wall Street protesters and have infuriated many Americans, but now, according to two whistle-blowers, there's a new outrage - defrauding Veterans.

They claim some of the nation's biggest banks have defrauded the last group of Americans you might ever expect - the men and women who have served the country in uniform.

Brian Donnelly spent three years in the army. So he was shocked by what he saw. Not on a battlefield, but a bank loan statement.

"At that point the light went off and it was just really apparent," he said.

Donnelly, who is a mortgage broker, said it was clear the bank was deliberately ripping off a veteran who was trying to refinance his home.

"Where the veteran didn't see it,. The VA didn't see it, I mean it was really slick how they did it," he said.

Donnelly and fellow mortgage broker Victor Bibby began going through other veterans' loan paperwork.

"Every one of the lenders were doing the same exact thing," Bibby said.

The two men said a loan document shows how the alleged fraud was done. Under Veteran Affairs rules, the banks are to pay attorney fees for all refinanced loans. That's why the line for attorney fees on the document is blank.

But the VA does allow banks to charge veterans other fees like for title examination - which Bibby and Donnelly said normally should cost between $125 and $200. The form showed a charge for $950.

"They were taking that fee that they should have paid and they put it into an allowable fee," Donnelly said.

"We know there have been over a million, approximately 1.2 million of these particular refinancing loans that are called IRRL loans over the last decade," attorney Marlin Wilbanks said.

Wilbanks said up to 90 percent of them may have had fraudulent fees.

"Yes, stunned is a better word. It's incomprehensible to me that the banks would do this to veterans," attorney Jim Butler said.

Bibby and Donnelly turned whistle blowers and filed suit in federal court, charging that veterans and taxpayers have been defrauded by some of the nation's biggest banks and mortgage companies.

Despite the potential of many victims, the U.S. Justice Department has not joined the case. Instead it's taking a wait and see approach.

Almost all the dozen or so banks named in the suit declines comment except Citi Mortgage, which in an email called the allegations without merit. On background, banks suggested if the feds aren't in on it, then the case can't be that strong.

To which an attorney for the whistle blowers had a simple reply.

"We will see them in court," Butler said.

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