National Lender Settles False Claims Act Allegations with DOJ for Over $74 Million

DOJ  •  FCA/FIRREA  •  Mortgage

On August 8, 2017, the Department of Justice (DOJ) announced that a national lender agreed to settle allegations that it violated the False Claims Act.  The settlement resolves allegations that the lender originated and underwrote mortgage loans insured by the United States Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) or guaranteed by the United States Department of Veterans Affairs (VA), and purchased by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) that did not meet applicable origination, underwriting, and quality-control requirements.

As part of the settlement, the government alleged that, between 2006 and 2011, the lender certified mortgage loans for FHA insurance that did not meet HUD underwriting requirements.  The government further alleged that in one case, the lender failed to adequately document a borrower’s income and employment histories, and endorsed for FHA insurance a loan where the borrower did not meet HUD’s minimum statutory investment requirements for the loan.  The government further alleged that, between 2006 and 2011, the lender did not comply with HUD’s self-reporting requirements, and did not report a single loan with a material defect to HUD during this time period.  As a result, HUD allegedly insured “hundreds” of loans that were not eligible for insurance, and ultimately paid insurance claims on these loans when the borrowers defaulted.

A separate settlement agreement resolved allegations that the lender also violated the False Claims Act in connection with its VA and FHFA lending.  The lender did not admit to any conduct as part of that separate settlement.

Pursuant to the settlement agreements, the lender will pay $65 million to resolve the FHA-lending allegations and $9.45 million to resolve the VA- and FHFA-lending allegations.

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