On October 3, 2016, the United States Department of Justice (DOJ) announced that two Utah-based Direct Endorsement (DE) lenders agreed to pay $5 million and $4.25 million dollars to settle separate cases relating to their origination and underwriting of mortgage loans insured by the United States Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA). DOJ alleges that the mortgage lenders violated the False Claims Act (FCA) by knowingly originating and underwriting FHA-insured loans that did not meet HUD requirements, which subsequently resulted in the payment of insurance claims by HUD.
As part of the settlements, both parties acknowledged that they each certified 100 loans that did not meet all HUD requirements, and thus were not eligible for insurance under the DE program. For example, one lender acknowledged that in relation to certain individual loans, it failed to document income and assets used to qualify a borrower for insurance, omitted liabilities owed by a borrower, failed to verify a borrower’s earnest money deposit, and failed to note that a borrower was delinquent on a pre-existing FHA mortgage. The other lender acknowledged that it certified loans for insurance despite knowing that certain borrowers had outstanding delinquencies, underwrote a loan with a loan amount exceeding HUD’s loan-to-value requirements, and failed to document the income used to qualify an individual borrower. Neither party admitted liability relating to this conduct. Rather, both reserved the right to contest the use or application of the settlement to future litigation.
As part of the settlements, DOJ agreed to release the parties from any administrative or civil liability under the FCA, the Program Fraud and Civil Remedies Act, and other common law theories relating to the origination of the 100 loans referenced in and attached to the settlement agreements. The parties were not released from any tax or criminal liability, nor were any individuals released as part of the agreements.
The settlements were part of joint investigations conducted by HUD, the HUD Office of Inspector General (HUD OIG), and the DOJ Civil Division’s Commercial Litigation Branch. The U.S. Attorney’s Office for the District of New Jersey was involved in the case which resulted in a $4.25 million settlement. The U.S. Attorney’s Office for the District of Colorado was also involved in the case resulting in the $5 million settlement.