Freedom Mortgage of Mount Laurel, N.J., has agreed to pay $113 million to settle government allegations that it failed to comply with Federal Housing Administration requirements for originating and servicing FHA-insured loans.
Scores of FHA lenders have entered into similar settlements with the Department of Justice for failing to comply with FHA rules. In the case of Freedom Mortgage, the alleged violations of the False Claims Act occurred from 2006 through 2011, according to the DOJ announcement on Friday.
"Freedom Mortgage did not properly comply with FHA rules for the mortgages it was generating and did not adequately monitor early payment defaults," said U.S. Attorney Paul J. Fishman for the District of New Jersey in a statement. "It also failed to report to [the Department of Housing and Urban Development] the defaults it did discover, as required by its participation in the program. Today's settlement recognizes those failures and imposes an appropriate sanction."
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The Federal Housing Administration said Tuesday that it has revised its proposed lender certification requirements in an effort to provide more clarity and reassure lenders they won't be penalized for minor loan defects or mistakes.
March 15 -
Wells Fargo's tentative agreement to pay $1.2 billion to resolve claims by the Justice Department that it made shoddy FHA loans is bad news for other banks that are the targets of similar probes.
February 3 -
Two independent mortgage banks agreed to settlements in the past week with the Justice Department for failing to meet Federal Housing Administration guidelines. The cases are a warning to nonbank lenders that they need to beef up self-reporting of deficiencies, and they remind large banks about the legal risks associated with FHA lending.
December 7
Freedom Mortgage said it would continue to originate FHA loans.
"Without any admission of liability and in order to avoid the extended distractions and expenses associated with protracted litigation, Freedom Mortgage made a business decision to resolve this matter," company spokesperson Audrey Shapiro said in a statement.
"The settlement in no way affects Freedom's ability to originate FHA insured loans. The company continues to focus on our most important mission — that of providing homeownership opportunities to our current and future customers."
According to industry insiders, HUD's inspector general and the DOJ are still investigating other companies for False Claim Act violations and could seek settlements from five to 10 lenders over the next six to 12 months.
Amid the scrutiny of FHA lenders, some have tightened their underwriting standards while others have stopped making FHA loans altogether after entering into settlements with the DOJ. To counter over-tightening of underwriting standards, the FHA recently proposed revisions to its loan certification requirements in an effort to assure lenders they won't be penalized for minor loan defects or mistakes.
"The sum of these changes provide clarity to what lenders are certifying to and clearly define the kind of loan-level mistakes that we have no intention of pursuing in an enforcement action," Ed Golding, the principal deputy assistant secretary for the FHA, said on March 15.
