Consumer Finance Insights
May 19, 2016

DOJ Sues Mortgage Company for Alleged False Claims Act Violations

On May 19, 2016, the Department of Justice (DOJ) announced that it filed a lawsuit against a national mortgage company relating to the company’s participation in the Direct Endorsement Lender Program of the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) insurance program. A qui tam plaintiff originally brought the claims against the company in 2014, and the DOJ filed its notice of decision to intervene in February 2016. The claims relate to loans the company originated between 2006 and 2011.

According to DOJ, the company certified loans for FHA insurance that did not satisfy FHA’s underwriting guidelines. The Company allegedly encouraged its underwriters to ignore FHA’s underwriting guidelines related to borrower credit-worthiness, income requirements, and other conditions required to certify loans for FHA insurance. The company also allegedly failed to maintain adequate internal quality controls, allowed unqualified “junior underwriters” to certify FHA loans, and ignored adverse quality control findings and complaints from investors. The DOJ alleges that “hundreds” of improperly-certified FHA loans defaulted, which HUD (and the taxpayers) were ultimately responsible for repaying.

The DOJ brought claims under the False Claims Act, and seeks treble damages for all losses incurred on the FHA loans and civil penalties. To date, the company has not responded to the allegations.