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Financial Services Law Insights and Observations

Regional Bank Agrees to Pay Over $200 Million for Alleged Violations of the False Claims Act

HUD DOJ Enforcement False Claims Act / FIRREA

Consumer Finance

On June 1, a regional bank agreed to pay the United States $212.5 million to resolve allegations that it knowingly violated the False Claims Act by originating and underwriting FHA-insured mortgage loans that did not meet applicable requirements. The bank – through its subsidiary and as a Direct Endorsement Lender in the FHA insurance program – had the authority to approve mortgage loans for FHA insurance without having FHA or HUD review the loan application first. The DOJ Civil Division’s investigation concluded that, from January 2006 through October 2008, the bank, even though it was aware of material deficiencies in its loan origination process, “failed to report even a single deficient mortgage to FHA.” DOJ further concluded that, while the bank profited from its loan process, taxpayers suffered significant losses when the loans defaulted and FHA incurred “substantial losses when it later paid insurance claims on these loans.” The bank admitted to failing to comply with FHA origination, underwriting, and quality control regulations.


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