Freedom Mortgage Corp., [1] is the latest company to resolve claims that it violated the False Claims Act by knowingly originating and underwriting single-family mortgage loans insured by the Federal Housing Administration (FHA) that did not meet the mortgage insurer's requirements.
The U.S. Justice Department [2] announced Friday that New Jersey-based Freedom Mortgage will pay $113 million resolve allegations that it violated the False Claims Act [3] from 2006 to 2011. According to the Justice Department, today's settlement resolves allegations that Freedom Mortgage "failed to comply with certain FHA origination, underwriting, and quality control requirements."
“It is imperative that mortgage lenders that participate in the FHA insurance program follow the rules and requirements set forth by HUD,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, Head of the Justice Department’s Civil Division. “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.”
U.S. Attorney Paul J. Fishman for the District of New Jersey added, “Freedom Mortgage did not properly comply with FHA rules for the mortgages it was generating and did not adequately monitor early payment defaults. 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.”
Freedom Mortgage was not immediately available to comment at the time of publication of this article.
The Department noted that as part of the settlement, Freedom Mortgage Corporation 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.
- Additionally, Freedom Mortgage Corporation did not adhere to FHA’s quality control (QC) requirements. Between 2006 and 2008, Freedom Mortgage Corporation 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 Corporation 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 Corporation did perform revealed high defect rates, exceeding 30 percent between 2008 and 2010. Yet, between 2006 and 2011, Freedom Mortgage Corporation did not report a single improperly originated loan to HUD, despite its obligation to do so.
- Additionally, in 2012, after identifying hundreds of loans that “possibly should have been self-reported to HUD,” it reported only one. As a result of Freedom Mortgage Corporation’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 the ineligible loans approved by Freedom Mortgage Corporation.
Click here [3]to view the full announcement.