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Michigan Lender to Pay $4.2M in Fraud Settlement

numberone-moneyThe heavy regulation of the mortgage industry has seen several of the nation's largest lenders reach multi-billion dollar settlements with the U.S. Department of Justice over toxic mortgage-backed securities. It is not just the larger lenders that are under the microscope, however; a recent multi-million dollar settlement between a lender and the U.S. Attorney for the Eastern District of Michigan showed that the smaller lenders cannot escape intense scrutiny from industry regulators.

Southfield, Michigan-based lender GTL Investments, Inc., doing business as John Adams Mortgage Company, recently agreed to pay $4.2 million to settle claims regarding the origination of federally-backed mortgage loans that were not properly underwritten, according to an announcement from U.S. Attorney for the Eastern District of Michigan Barbara McQuade.

GTL Investments entered into the agreement with McQuade's office to settle allegations that mortgage loans originated by the lender and backed by the Federal Housing Administration (FHA) had material underwriting deficiencies. Underwriting standards are the criteria which borrowers must meet to purchase an FHA-insured residential mortgage loan with a modest down payment; the loan originator is responsible for ensuring that the borrower meets the underwriting standards in order to minimize the risk of default, in the event of which FHA pays the mortgage holder for the losses.

The Office of the Inspector General for HUD discovered through an investigation that 31 loans originated by GTL during a four-year period from 2008 to 2012 did not meet the underwriting criteria. As a result, 29 of those loans went to claim, which cost FHA more than $2.4 million in damages. The remaining two loans that had not gone to claim were found to have a potential risk of about $250,000 in losses, for which GTL agreed to indemnify FHA.

"By holding accountable lenders who fail to comply with underwriting requirements, we hope to send a message to all lenders that they must comply with government standards for federally insured loans," McQuade said in a statement.

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.

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