Defendant PHH Corp, a major mortgage lender, has agreed to pay $74,453,802 to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA), guaranteed by the United States Department of Veterans Affairs (VA), and purchased by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) that did not meet applicable requirements.
According to the allegations, PHH Corp, headquartered in Mount Laurel, New Jersey, and PHH Home Loans, which operates in Edina, Minnesota, submitted defective loans for government insurance, resulting in homeowners and taxpayers paying the price. Acting U.S. Attorney for the District of Minnesota Gregory Brooker said, “PHH submitted defective loans for government insurance, and homeowners and taxpayers paid the price. This significant resolution helps rectify the misconduct by returning more than $74 million in wrongfully claimed funds to the government.”
The False Claims Act allegations stem from PHH’s participation as a Direct Endorsement lender (DEL) in the FHA insurance program since at least January 2006. A DEL has the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan. Under the DEL program, the FHA does not review a loan before it is endorsed for FHA insurance for compliance with FHA’s credit and eligibility standards, but instead relies on the efforts of the DEL to verify compliance.
Acting Assistant Attorney General Chad A. Readler, head of the Justice Department’s Civil Division, stated, “Government mortgage programs designed to assist homeowners — including programs offered by the FHA, VA, Fannie Mae and Freddie Mac — depend on lenders to approve only eligible loans. The Department has and will continue to hold accountable lenders that knowingly cause the government to guarantee, insure, or purchase loans that are materially deficient and put both the homeowner and the taxpayers at risk.”
As part of the settlement, PHH Corp has agreed to pay $65 million to resolve the FHA allegations and $9.45 million to resolve the VA and FHFA allegations. Acting U.S. Attorney William E. Fitzpatrick for the District of New Jersey said, “This settlement requires PHH to pay back to the taxpayers of the United States millions of dollars in loans that never should have been made.”
The settlements announced today resolve allegations that PHH failed to comply with certain FHA, VA, Fannie Mae and Freddie Mac origination, underwriting, and quality control requirements. Acting U.S. Attorney Benjamin G. Greenberg said, “By failing to comply with FHA regulations, PHH put taxpayers and borrowers at risk of sustaining significant financial losses.”
Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York, stated, “For government mortgage programs to assist homeowners but not take on ill-advised risk, all participants in the mortgage lending process must provide true and complete information. Today’s settlement with PHH demonstrates our continuing commitment to requiring such integrity in the process.”
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Key Facts
- State: Minnesota
- Category: Fraud & Financial Crimes
- Source: DOJ Press Release â†â€â€
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