The Department of Justice’s Office of Public Affairs recently reported that First Tennessee Bank N.A., headquartered in Memphis, Tennessee, has agreed to pay $212.5 million to resolve allegations of its violation of the False Claims Act that stems from Federal Housing Administration-insured (FHA) mortgage lending.
Allegedly, First Tennessee Bank knowingly originated and underwrote mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) FHA that did not meet applicable requirements, the Justice Department reported.
“First Tennessee admitted failings that resulted in poor quality FHA loans,” said John A. Horn acting U.S. attorney of the northern district of Georgia. “While First Tennessee profited from these loans, taxpayers incurred substantial losses when the loans defaulted. The settlement, as well as the investigation that preceded it, illustrates that the Department of Justice will closely scrutinize entities that cause financial injury to the government, and, in turn, the American taxpayer.”
The Justice Department reported that between January 2006 and October 2008, First Tennessee participated in the FHA insurance program as a Direct Endorsement Lender (DEL) through its subsidiary First Horizon Home Loans Corporation (First Horizon). First Tennessee was allowed to originate, underwrite, and endorse mortgages for FHA insurance. If they were to approve a mortgage loan for FHA insurance and the loan defaults, the loan holder is responsible for submitting an insurance claim to HUD to reclaim losses associated with the defaulted loan. First Tennessee is required to follow the DEL program rules that are in place to ensure that they are properly underwriting and certifying mortgages for FHA insurance, to maintain a quality control program that can prevent and correct deficiencies in their underwriting practices, and to self-report any deficient loans identified by their quality control program.
First Tennessee sold First Horizon to MetLife Bank N.A. (MetLife), a wholly-owned subsidiary of MetLife Inc. in August 2008, the Justice Department said. Shortly after this transaction, First Horizon began originating FHA-insured loans under the MetLife name. By February 2015, MetLife agreed to pay $123.5 million to resolve its False Claims Act liability that stemmed from its acquirement of First Horizon from First Tennessee.
“First Tennessee’s reckless underwriting has resulted in significant losses of federal funds and was precisely the type of conduct that caused the financial crisis and housing market downturn,” said Benjamin C. Mizer, principal deputy assistant attorney general of the Justice Department’s Civil Division. “We will continue to hold accountable lenders who put profits before both their legal obligations and their customers, and restore wrongfully claimed funds to FHA and the treasury.”
The settlement will resolve all allegations that First Tennessee failed to comply with FHA origination, underwriting, and quality control requirements, the Justice Department said. The bank admitted that from January 2006 through October 2008, it repeatedly certified FHA insurance mortgage loans that did not meet HUD underwriting requirements.
“Our investigation found that First Tennessee caused FHA to pay claims on loans that the bank never should have approved and insured in the first place,” said David A. Montoya, HUD inspector general. “This settlement reinforces my commitment to combat fraud in the origination of single family mortgages insured by the FHA and makes certain that only qualified, creditworthy borrowers who can repay their mortgages are approved under the FHA program.”
The investigation of the allegations in the government’s complaint was a coordinated effort between the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office of the Northern District of Georgia, HUD and HUD’s Office of Inspector General.
“We are pleased that First Tennessee has acknowledged facts that demonstrate its failure to comply with HUD’s requirements and has agreed to settle with the government,” said HUD General Counsel Helen Kanovsky. “We thank the Department of Justice and HUD’s Office of Inspector General for all of their efforts in helping us to make this settlement a reality. We hope this agreement sends a message to those lenders with whom we do business that HUD takes compliance very seriously and so should they.”