On August 5, 2015, a bank revealed in an U.S. Securities and Exchange Commission filing that the U.S. Department of Housing and Urban Development (“HUD”) Office of Inspector General and the U.S. Department of Justice (collectively, the “Government”) are currently investigating whether the bank complied with underwriting requirements on loans where HUD paid FHA insurance claims on loans sold to Freddie Mac and Fannie Mae. The Government has told the bank that a sample of the loans it analyzed do not meet underwriting requirements. The bank disagrees with the Government’s sampling methodology and loan analysis.
The bank warned that the investigation could lead to claims against it under the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which permit treble and other special damages beyond actual losses. Possible remedies from these proceedings or a settlement may include restitution, fines, penalties, or alterations in the bank’s lending practices. The bank has begun settlement discussions with the Government.