Mortgage Fraud

A settlement has been reached to resolve False Claims Act allegations against United Shore Financial Services LLC.

The allegations arose from a lawsuit that claimed United Shore Financial Services LLC (USFS) knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements.

The settlement covers allegations from January 1, 2006 through December 31, 2011, USFS failed to comply with certain FHA origination, underwriting and QC requirements.

 As part of the settlement, USFS admitted to the following:  USFS improperly pressured underwriters to approve FHA mortgages and its compensation plan used a formula expressly tying underwriter compensation to the percentage of loans approved by the underwriter and closed by USFS.  USFS also falsely certified that direct endorsement underwriters personally reviewed appraisal reports prior to USFS approving and endorsing mortgages for FHA insurance.

The Housing and Urban Development Department insured hundreds of approved loans that were not eligible for insurance. The federal government "subsequently incurred substantial losses when it paid insurance claims" on USFS approved loans.

"USFS acknowledged that it failed to comply with FHA underwriting and quality control requirements, resulting in improperly originated mortgages," U.S. Attorney John W. Vaudreuil of the Western District of Wisconsin said in the news release. "This large settlement should send a clear message that such conduct will not be tolerated."    

A settlement has been reached to resolve False Claims Act allegations against Regions Bank.

The allegations arose from a lawsuit that claimed Regions Bank knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements.

On September 13, 2016, the Department of Justice announced that between January 1, 2006, and December 31, 2011 Regions certified for FHA insurance certain mortgage loans that did not meet certain HUD underwriting requirements regarding borrower creditworthiness.  Additionally, during this time frame, Regions did not maintain a quality control (QC) program that fully complied with the requirements established by HUD.  The Company's QC Department did not consistently review an adequate sample of FHA-insured loans.  Furthermore, Regions’ QC Department identified deficiencies during the course of its loan review, Regions engaged in a pattern of “curing” QC findings by obtaining documentation that was not available to the underwriter at the time the loan was approved.  As a result, the defect rate reported to senior management was understated.  Regions also failed to review Early Payment Default (EPD) loans in accordance with HUD guidelines.  Regions was required to review all loans that became 60 days past due within the first six months,  the Company reviewed only those loans that became 90 days past due. Also, Regions did not fully adhere to HUD’s self-reporting requirements.

As a result of the Company's mishandling and oversight, HUD insured hundreds of loans approved by Regions that were not eligible for FHA mortgage insurance under the DEL program and that HUD would not otherwise have insured.  

A judge has approved the $1.2 billion settlement Wells Fargo has reached with the government over claims that it had engaged in improper mortgage lending practices.

On Friday the Department of Justice, announced that the United States has settled civil mortgage fraud claims against Wells Fargo Bank, N.A. (Wells Fargo) and Wells Fargo executive Kurt Lofrano, stemming from Wells Fargo’s participation in the Federal Housing Administration (FHA) Direct Endorsement Lender Program.  In the settlement, Wells Fargo agreed to pay $1.2 billion and admitted, acknowledged and accepted responsibility for, among other things, certifying to the Department of Housing and Urban Development (HUD), during the period from May 2001 through December 2008, that certain residential home mortgage loans were eligible for FHA insurance when in fact they were not, resulting in the Government having to pay FHA insurance claims when some of those loans defaulted.  The agreement resolves the United States’ civil claims in its lawsuit in the Southern District of New York, as well as an investigation conducted by the U.S. Attorney’s Office for the Southern District of New York regarding Wells Fargo’s FHA origination and underwriting practices subsequent to the claims in its lawsuit and an investigation conducted by the U.S. Attorney’s Office for the Northern District of California into whether American Mortgage Network, LLC (AMNET), a mortgage lender acquired by Wells Fargo in 2009, falsely certified and submitted ineligible residential mortgage loans for FHA insurance.

“Wells Fargo and the United States government have reached an agreement in principle to resolve claims regarding our FHA lending activities, and the company has made an addition to its previously announced reserves to reflect this development," Mariana Phipps, a Wells Fargo spokesperson told the Business Times when the settlement was announced in February.

The settlement was approved by U.S. District Judge Jesse M. Furman for the Southern District of New York.

On Monday the Justice Department announced a $5.06 billion settlement with Goldman Sachs in connection to the Company's conduct in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities between 2005 and 2007. 

Goldman Sachs will pay $2.385 billion in a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act and $1.8 billion in other relief, including relief to underwater homeowners, distressed borrowers and affected communities, in the form of loan forgiveness and financing for affordable housing.  Goldman Sachs will also pay $875 million to resolve claims by other federal entities and state claims.

"This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail," Acting Associate Atty. Gen. Stuart Delery said in a statement.

Settlements have also been reached with five other major financial institutions since 2012, J.P. Morgan Chase for $13 billion, Bank of America for $16.6 billion, Citibank for $7 billion and Morgan Stanley for $3.2 billion.

A settlement has been reached in a whistleblower class action lawsuit brought against Walter Investment Management Corp (WMIC) who is accused of submitting false claims in connection with their participation in the Department of Housing and Urban Development’s (HUD’s) Home Equity Conversion Mortgages (HECM) program.

The whistleblower will receive a $5.15 million share of the recovery.

The whistleblower case, filed in July 2013, alleged that WIMC, through its subsidiaries, Reverse Mortgage Solution Inc. (RMS), REO Management Solutions LLC and RMS Asset Management Solutions LLC, violated the False Claims Act in connection with their participation in the Department of Housing and Urban Development’s (HUD’s) Home Equity Conversion Mortgages (HECM) program, which insures “reverse” mortgage loans. The United States claimed from August 2009 to March 2015, RMS, with the knowledge and support of its corporate parent, WIMC, submitted false claims for debenture interest from HUD by failing to properly disclose that it had not met certain deadlines and, therefore, was not entitled to such interest payments.  In order to obtain such interest, HUD requires lenders and their servicers to obtain appraisals within 30 days of the loan becoming due and payable.  The significance of the 30-day appraisal requirement is, among other things, to establish a mutual understanding between the lender and HUD as to the market value of the property so that a decision can be made as to whether to proceed with foreclosure, engage in a workout with the lender or deal with estate rights issues.

The government also alleged that from July 2010 to October 2014, WIMC, through its subsidiaries, submitted false claims to HUD for the reimbursement of unlawful referral fees by falsely representing them to be lawful sales commissions.  As part of an insurance claim, HUD will reimburse lenders or their servicers for sales commissions paid to real estate agents as part of the liquidation of foreclosed properties.  HUD will not, however, reimburse lenders or their servicers for fees paid for the referral of liquidation business.  According to the government, RMS often used straw companies to liquidate foreclosed properties.  Upon sale of the foreclosed property, the straw companies split the six-percent sales commissions: the real estate agents shared a five-percent sales commission and the companies kept a one-percent referral fee.  These straw companies, in turn, deducted a small fee from the one-percent referral fee and kicked the remainder back to RMS.  Nonetheless, RMS submitted insurance claims to HUD that included payment for the full six-percent sales commission, when, in fact, the payment included a prohibited referral fee.

A settlement has been reached to resolve False Claims Act Allegations against Beazer Homes USA Inc.  They are accused of fraudulent mortgage origination activities in connection with federally insured mortgages.

According to the agreement, Beazer will pay $5 million dollars, plus contingent payments of up to $48 million dollars to be shared with victimized private homeowners.

The federal government alleged that when Beazer Mortgage Corp made Federal Housing Administration (FHA) insured mortgage loans for the purchase of homes built by Beazer Homes USA Inc., the companies fraudulently and improperly: 1) required purchasers to pay "interest discount points" at closing, but then kept the cash and failed to reduce interest rates; 2) provided cash "gifts" to home purchasers through certain charities, so purchasers could come up with minimum required down payments, with assurances the "gifts" would not have to be repaid, and then increased home purchase prices to offset the amount of the gifts; 3) obscured which of its branches made defaulting mortgage loans to avoid FHA detection of excessive default rates, and; 4) ignored "stated income" requirements in making loans to unqualified purchasers.

As a consequence, unqualified home buyers were induced to enter into FHA insured mortgages, interest rates for and the amount of FHA insured mortgages were improperly inflated, and Beazer Mortgage branches involved in fraudulent activity were hidden from the FHA. In some instances, mortgages that resulted from these fraudulent activities defaulted. When they did so, holders of the loans made FHA mortgage insurance claims and the FHA was wrongfully required to pay inflated claims, and to pay for the management, maintenance, rehabilitation and marketing of defaulted properties. 

A settlement has been reached in a whistleblower class action lawsuit brought against Bank of America who is accused of selling billions of dollars of Residential Mortgage-Backed Securities (RMBS) without disclosing to investors key facts about the quality of the securitized loans. 

The $16.65 billion resolution is broken down as follows;

• $10 billion will be paid to settle federal and state civil claims by various entities related to RMBS, collateralized debt obligations and other types of fraud.
• Bank of America will pay a $5 billion civil penalty to settle the Justice Department claims under FIRREA.
• Approximately $1.8 billion will be paid to settle federal fraud claims related to the bank’s origination and sale of mortgages.
• $1.03 billion will be paid to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC).
• $135.84 million will be paid to settle claims by the Securities and Exchange Commission.
• $300 million will be paid to settle claims by the state of California.
• $45 million to settle claims by the state of Delaware.
• $200 million to settle claims by the state of Illinois.
• $23 million to settle claims by the Commonwealth of Kentucky.
• $75 million to settle claims by the state of Maryland.
• $300 million to settle claims by the state of New York.

The bank has conceded that it originated risky mortgage loans and made misrepresentations about the quality of those loans to Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA).

This settlement also resolves the complaint filed against Bank of America in August 2013 by the U.S. Attorney’s Office for the Western District of North Carolina concerning an $850 million securitization. Bank of America acknowledges that it marketed this securitization as being backed by bank-originated “prime” mortgages that were underwritten in accordance with its underwriting guidelines. Yet, Bank of America knew that a significant number of loans in the security were “wholesale” mortgages originated through mortgage brokers and that based on its internal reporting, such loans were experiencing a marked increase in underwriting defects and a noticeable decrease in performance. Notwithstanding these red flags, the bank sold these RMBS to federally backed financial institutions without conducting any third party due diligence on the securitized loans and without disclosing key facts to investors in the offering documents filed with the SEC. A related case concerning the same securitization was filed by the SEC against Bank of America and is also being resolved as part of this settlement.

A settlement has been reached resolving False Claims Act allegations by First Tennessee Bank N.A. who is accused of knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements.

As part of the settlement, First Tennessee admitted to the following facts: From January 2006 through October 2008, it repeatedly certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements.  Beginning in late 2007, First Tennessee significantly increased its FHA originations.  The quality of First Tennessee’s FHA underwriting significantly decreased during 2008 as its FHA lending increased.  Beginning no later than early 2008, First Tennessee became aware that a substantial percentage of its FHA loans were not eligible for FHA mortgage insurance due to its own quality control findings.  These findings were routinely shared with First Tennessee’s senior managers.  Despite internally acknowledging that hundreds of its FHA mortgages had material deficiencies, and despite its obligation to self-report findings of material violations of FHA requirements, First Tennessee failed to report even a single deficient mortgage to FHA.

A settlement has been reached resolving False Claims Act Allegations by MetLife Home Loans LLC who is accused of knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements.

As part of the settlement, MetLife Home Loans LLC admitted to the following facts: From September 2008 through March 2012, it repeatedly certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements.  MetLife Bank was aware that a substantial percentage of these loans were not eligible for FHA mortgage insurance due to its own internal quality control findings.  According to these findings, between January 2009 and August 2010, the portion of MetLife Bank loans containing the most serious category of deficiencies, which MetLife Bank called “material/significant,” ranged from 25 percent to more than 60 percent.  These quality control findings were routinely shared with MetLife Bank’s senior managers, including the chief executive officer and board of directors.  While the overall “significant” error rate identified by MetLife Bank decreased in 2010 and 2011, during the same time period, MetLife Bank more frequently downgraded FHA loans from “significant” to “moderate.”  In one instance, a quality control employee wrote in an email discussing MetLife Bank’s practice of downgrading its quality control findings: “Why say Significant when it feels so Good to say MODERATE.”  Overall, between January 2009 and December 2011, MetLife Bank identified 1,097 FHA mortgage loans underwritten by MetLife Bank with a “significant” finding, but despite an obligation to self-report findings of material violations of FHA requirements, MetLife Bank only self-reported 321 mortgages to HUD.  MetLife Bank’s conduct caused FHA to insure hundreds of loans that were not eligible for insurance and, as a result, FHA suffered substantial losses when it later paid insurance claims on those loans.

A settlement has been reached in a whistleblower class action lawsuit brought against JPMorgan Chase who is accused of knowingly originating and underwriting non-compliant mortgage loans submitted for insurance coverage and guarantees by the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).

The settlement resolves allegations in a complaint filed by a private whistleblower. As part of the settlement, JPMC admitted that, for more than a decade, it approved thousands of FHA loans and hundreds of VA loans that were not eligible for FHA or VA insurance because they did not meet applicable agency underwriting requirements.  JPMC further admitted that it failed to inform the FHA and the VA when its own internal reviews discovered more than 500 defective loans that never should have been submitted for FHA and VA insurance. 

The original whistleblower case was filed in January 2013. The lawsuit alleges that starting as early as 2002, JPMorgan Chase falsely certified that loans it originated and underwrote were qualified for FHA and VA insurance and guarantees.  As a consequence of JPMC’s misrepresentations, both the FHA and the VA incurred substantial losses when unqualified loans failed and caused the FHA and VA to cover the associated losses.