On February 7, the U.S. Attorney for the Eastern District of New York, the Office of the Inspector General for the Department of Housing and Urban Development (HUD), and the Inspector General for the Federal Deposit Insurance Corporation announced a settlement agreement and consent order with a residential mortgage lender and several of its executives, including its Chief Executive Officer and Chief Operating Officer.  The mortgage lender originates and underwrites loans insured by HUD’s Federal Housing Administration (FHA).

The settlement resolves allegations that the lender made illegal mortgage payments for borrowers on over one hundred FHA-insured loans, in violation of the False Claims Act, 31 U.S.C. § 3729, the Financial Institutions Recovery, Reform and Enforcement Act (FIRREA), 12 U.S.C. § 1833a, and common law theories of gross negligence, breach of fiduciary duty and unjust enrichment. The lender allegedly made these payments to stay in compliance with HUD’s Direct Endorsement Program standards, which require lenders’ mortgage default rates to remain within certain predefined limits. Without these payments, the loans would have likely gone into default within two years of origination, and the lender would have been subject to suspension or permanent removal from HUD’s Direct Endorsement Program.

As part of the settlement agreement, the lender’s executive officers agreed to pay $1.25 million to resolve the claims.