Feds Announce Mortgage-Related False Claims Act Settlement

HUD

On February 24, HUD and the U.S. Attorney for the Southern District of New York announced that they had obtained from Flagstar Bank FSB an admission that the bank submitted false certifications to HUD when seeking government insurance for residential mortgages in violation of the False Claims Act. As part of a settlement agreement the bank also agreed to pay $132.8 million in damages and penalties, and reform its businesses practices. This is the second recent settlement of mortgage-related violations of the False Claims Act following the largest such settlement in history, announced as part of the multi-party settlement with five mortgage servicing companies. That agreement included a $1 billion settlement of False Claims Act allegations against Bank of America with regard to Countrywide loans.  In all of the cases federal authorities alleged, among other things, that a financial institution participating in the FHA‘s Direct Lender Program repeatedly and falsely endorsed loans for FHA insurance that did not comply with underwriting requirements. The loans therefore should not have been eligible for government insurance, yet the federal insurance fund was unnecessarily impaired when those borrowers defaulted.