On September 13, 2016, the Department of Justice (“DOJ”) announced a settlement agreement with a bank for allegedly violating the False Claims Act by improperly underwriting and originating of FHA-insured mortgage loans.
According to the DOJ, from January 1, 2006 to December 31, 2011, the lender was improperly underwriting and certifying that mortgage loans qualified for FHA insurance when the loans in fact did not meet the Department of Housing and Urban Development (“HUD”) underwriting and FHA program requirements. DOJ alleged that the lender was violating one or more HUD requirements, including overstating borrower income, understating borrower liabilities, and inadequate verification of income and employment. It further alleged that the lender was not in compliance with HUD-required quality control procedures and failed to self-report instances of material deficiencies in FHA loans identified in the lender’s quality control reviews. As a result of the lender’s conduct, DOJ claimed that HUD had insured hundreds of loans approved by the lender that were not FHA-eligible and incurred substantial losses when it paid insurance claims on the loans at issue.
The settlement requires the lender to pay $52.4 million to the federal government and to identify and repay any unallowable costs the lender sought in connection with its prior submission of the FHA loans at issue. It also released the lender from liability under provisions of the False Claims Act, Program Fraud Civil Remedies Act, and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, and under several common law claims.