Mortgage Lender Pays $4.157 Million to Settle False Claims Act Allegations Concerning FHA Loans

FHA  •  HUD  •  Mortgage

​On July 3, 2017, the United States Department of Housing and Urban Development (HUD), the HUD Office of Inspector General (HUD-OIG), the U.S. Attorney’s Office for the Northern District of Georgia, and the U.S. Attorney’s Office for the Northern District of California announced that they had reached a settlement with a national mortgage lender, resolving allegations that the lender, who participated in the Direct Endorsement Lender (DEL) Program, had failed to comply with HUD guidelines in underwriting and endorsing mortgage loans insured by the Federal Housing Administration (FHA).

Under the DEL Program, an approved lender underwrites and endorses loans for FHA insurance.  If the loan later defaults, the lender (or holder of the note) may submit an insurance claim to the FHA insurance fund.  To participate in the DEL Program, mortgage lenders must certify their compliance with HUD underwriting and quality control requirements.  The government alleged that between December 2007 and December 2009, the lender failed to adhere to HUD guidelines concerning the calculation of a borrower’s income, assets, and credit, which resulted in a 12.29% loan default rate.  The government alleged that 76% of these defaults were attributable to loans underwritten by the lender’s branches in Florida and North Carolina.

Under the terms of the settlement, the lender acknowledged that it failed to comply with HUD guidelines in underwriting loans endorsed for FHA insurance, that it falsely certified that non-compliant loans were in fact compliant, and that it failed to adhere to HUD quality control guidelines.  The lender also agreed to pay the government $4.157 million to resolve allegations that its conduct violated the federal False Claims Act.
In January, this same lender paid $3.5 million to resolve allegations it was involved in an illegal kickback scheme.  Enforcement Watch’s coverage of that enforcement action is available here.

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