The Federal Housing Administration (FHA) is the largest mortgage insurer in the world, insuring more than one-third of the country’s home mortgages. FHA insurance was first offered during the Great Depression and has made home ownership possible for millions of low and moderate income Americans who might not have met conventional underwriting requirements, by guaranteeing their loans—which, in turn, lowered interest rates, reduced the size of required down payments, and protected lenders against the risk of default.
Under the FHA’s direct endorsement program, participating lenders underwrite for the FHA directly, both reviewing and certifying mortgages for FHA insurance. The integrity of this program requires participating lenders to comply with underwriting standards. False Claims Act liability is triggered when lenders knowingly originate and underwrite mortgages that do not comply with FHA standards, for example, by knowingly overstating or failing to verify borrowers’ income or assets or using faulty appraisals.
A number of successful False Claims Act cases have been brought against financial institutions for fraudulent practices in connection with originating FHA-insured loans for unqualified borrowers. By way of example:
In 2014, JPMorgan Chase agreed to pay $614 million to resolve claims that it violated the False Claims Act by knowingly originating and inducing the FHA to accept thousands of non-compliant mortgage loans for FHA insurance, from borrowers not eligible for that insurance because they did not meet the agencies’ underwriting requirements, leaving the government to cover the losses when the loans defaulted. Read more
In 2012, Bank of America agreed to pay $1 billion to resolve claims that Countrywide Financial, which Bank of America acquired in 2008, violated the False Claims Act by knowingly underwriting and originating loans insured by the FHA for tens of thousands of unqualified borrowers, whose eligibility for FHA loans Countrywide systematically failed to determine. Read more
Also in 2012, Deustsche Bank agreed to pay $202 million to resolve claims that MortgageIT, Inc., a wholly owned subsidiary of the bank, violated the False Claims Act by repeatedly endorsing mortgages for FHA insurance while falsely certifying that it was originating mortgages in compliance with HUD-FHA rules when in fact it was not, causing losses to HUD when some of those loans defaulted. Read more
In 2009, Beazer Homes USA agreed to pay at least $5 million to resolve claims that it violated the False Claims Act by originating FHA insured loans for the purchase of homes built by Beazer, while fraudulently and improperly: 1) requiring purchasers to pay “interest discount points” at closing, but then keeping the cash and failing to reduce interest rates; 2) providing cash “gifts” to home purchasers so purchasers could come up with minimum required down payments, with assurances the “gifts” would not have to be repaid, and then increasing home purchase prices to offset the amount of the gifts; 3) obscuring which of its branches made defaulting mortgage loans to avoid FHA detection of excessive default rates, and; 4) ignoring “stated income” requirements in making loans to unqualified purchasers. Read more
If you have knowledge and solid evidence of fraud or false claims involving federal funds and the financial services industry, please contact our whistleblower lawyers. Consultations are free and confidential.