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Financial Services Law Insights and Observations

DOJ settles FCA allegations with mortgage lender for $13.2 million

Federal Issues Whistleblower Mortgages Mortgage Insurance DOJ False Claims Act / FIRREA Settlement

Federal Issues

On October 19, the DOJ announced a $13.2 million settlement with a mortgage lender resolving allegations that the company violated the False Claims Act (FCA) by falsely certifying  compliance with the Federal Housing Administration (FHA) mortgage insurance requirements in violation of the False Claims Act (FCA). Specifically, the government alleged that, between 2006 and 2011, the lender failed to follow proper mortgage underwriting and certification rules as a participant in the direct endorsement lender program and knowingly submitted loans for FHA insurance that did not qualify. Additionally, DOJ alleged that the lender “improperly incentivized underwriters and knowingly failed to perform quality control reviews.” Under the direct endorsement lender program, FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance; accordingly lenders are required to follow rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance. This settlement also resolves a related whistleblower lawsuit filed under the FCA, in which the former employee of a related entity will receive approximately $2 million.

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