Freedom Mortgage Corp., a major mortgage lender, has agreed to pay the United States $113 million to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting single family 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 for the FHA insurance program.
The allegations against Freedom Mortgage Corp. state that the company failed to properly comply with FHA rules for the mortgages it was generating and did not adequately monitor early payment defaults. The company also failed to report to HUD the defaults it did discover, as required by its participation in the program.
“Freedom Mortgage did not properly comply with FHA rules for the mortgages it was generating and did not adequately monitor early payment defaults,” said U.S. Attorney Paul J. Fishman for the District of New Jersey. “It also failed to report to HUD the defaults it did discover, as required by its participation in the program. Today’s settlement recognizes those failures and imposes an appropriate sanction.”
As part of the settlement, Freedom Mortgage Corp. admitted to the following facts:
Between Jan. 1, 2006, and Dec. 31, 2011, it certified mortgage loans for FHA insurance that did not meet HUD underwriting requirements and were therefore not eligible for FHA mortgage insurance. Freedom Mortgage Corp. did not adhere to FHA’s quality control (QC) requirements. Between 2006 and 2008, Freedom Mortgage Corp. did not share its early payment default (EPD) QC reviews with production and underwriting management, nor did it require responses to its EPD QC findings from its production or underwriting staff.
Due to staffing limitations between 2008 and 2010, Freedom Mortgage Corp. did not always perform timely QC reviews or perform audits of all EPD loans, as required by HUD. An EPD is a loan that becomes 60 days past due within the first six months of the loan. The EPD QC reviews that Freedom Mortgage Corp. did perform revealed high defect rates, exceeding 30 percent between 2008 and 2010. Yet, between 2006 and 2011, Freedom Mortgage Corp. did not report a single improperly originated loan to HUD, despite its obligation to do so.
As a result of Freedom Mortgage Corp.’s conduct, HUD insured hundreds of loans that were not eligible for FHA mortgage insurance under the DEL program, and that HUD would not otherwise have insured and subsequently incurred substantial losses when it paid insurance claims on those loans.
Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, said, “It is imperative that mortgage lenders that participate in the FHA insurance program follow the rules and requirements set forth by HUD. We will continue to work with our partners at HUD, its Office of Inspector General, and U.S. Attorneys around the country to protect homeowners and taxpayers from those who knowingly seek to abuse the FHA program for their own gain.”
Freedom Mortgage Corp. is headquartered in Mt. Laurel, New Jersey.
The settlement announced today resolves allegations that Freedom Mortgage Corp. failed to comply with certain FHA origination, underwriting and quality control requirements. Defendant/Respondent: Freedom Mortgage Corp. Criminal Charges: Violation of the False Claims Act City and State: Newark, New Jersey Exact Date: N/A Sentence or Outcome: $113 million settlement
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Key Facts
- State: New Jersey
- Category: White Collar Crime
- Source: DOJ Press Release â†â€â€
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