FHA Lender Settles False Claims Allegations for $70 Million

DOJ  •  FCA/FIRREA  •  HUD

DOJ_250x170On December 2, the U.S. Department of Justice (DOJ) announced that a mortgage company settled claims that it violated the False Claims Act by originating and underwriting mortgage loans insured by the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) by failing to comply with certain FHA requirements.

The company did not admit liability as part of the settlement agreement, but acknowledged that it engaged in certain conduct between January 2006 and December 2012.  As a Direct Endorsement Lender, the company was authorized to originate and underwrite qualifying loans for FHA insurance without further approval from HUD or FHA.  The company admitted that it certified for FHA insurance certain loans that did not meet HUD requirements; set and enforced production quotas for its direct endorsement underwriters; and incentivized underwriters based on the number of loans reviewed.

Further, quality control reports prepared by the company and/or its third party reviewers indicated that a significant number of loans underwritten by the company had serious deficiencies.  For example, the 2010 quality control report indicated that 22 to 30 percent of the company’s loans were rated poor.  Additionally, although the company acknowledged that it had been required to self report serious deficiencies to HUD since 2005, it made no such reports until 2009.

The company agreed to pay the United States $70 million in total, with an immediate payment of $10 million to be made within a week of the agreement.  The United States released the company from liability pursuant to the False Claims Act and other civil claims, but excluded criminal liability and liability for any individuals.

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