FHA Lender Settles False Claims Act Allegations for $113 Million

DOJ  •  FCA/FIRREA  •  FHA  •  HUD  •  Mortgage

DOJ_250x170On April 15, the U.S. Department of Justice (DOJ) announced that a mortgage company settled claims it violated the False Claims Act by originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that failed to comply with certain requirements for the FHA insurance program. The settlement resulted from a joint investigation conducted by HUD and DOJ.

As part of the settlement agreement, the company admitted that between January 1, 2006 and December 31, 2011, it certified loans for FHA insurance that did not meet HUD’s underwriting requirements. The company also admitted that between 2008 and 2010, it did not always perform quality control reviews or audits of loans that resulted in early payment default, which is required by HUD. The quality control reviews that were performed showed defect rates that exceeded 30 percent between 2008 and 2010, but the company did not comply with HUD’s requirement to self-report any improperly originated loans. The company specifically admitted that in 2012, it identified hundreds of loans that should have been self-reported, but it only reported one. As a result, the company admitted that HUD insured hundreds of loans it otherwise would not have insured, leading to substantial losses.

The company agreed to pay the United States $113 million in total, with an immediate payment of $26 million to be made on or before May 2, 2016. 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. As reported by Consumer Finance Enforcement Watch, this settlement comes on the tail of the resolution of a similar action last week.

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