Or, should I say settlements (plural)? This time, the Department of Justice settled two actions brought under the False Claims Act against two separate Utah-based lenders. The total settlement was close to $10 million.
Primary Residential Mortgage (PRMI) agreed to pay $5 million while SecurityNational Mortgage (SNMC) chipped in another $4.25 million. Both are independent mortgage companies, not big banks as have been targeted by the DOJ in the past. This further demonstrates that no lender is safe from these enforcement actions; big and small alike.
Same story; both were hit with allegations of their failure to properly underwrite and QC their FHA loans. As a result, HUD incurred substantial losses after paying out claims on defaulted loans. SNMC made a business decision to settle their claim to avoid extended distractions and additional expense related to potential lengthy litigation. Neither company admitted any liability in connection with these settlements.
The claims made against these lenders include their failure to properly validate and document the income, assets and earnest money deposits of the FHA borrowers. According to David Montoya, HUD Inspector General, the settlements resolved allegations made against lenders that are entrusted by the American taxpayers to abide by the FHA rules. The settlement demonstrates FHA’s and DOJ’s commitment to address these type failures and halt business practices that may harm the FHA program.
It is quite evident that FHA and DOJ are still on the lookout for those who they believe broke, or who are breaking, the rules; Bank, non-bank, big or small. Lenders need to be very careful when originating FHA-insured loans. Ensure that everyone involved in the process knows, and is doing, what needs to be done on FHA loans correctly. Follow the FHA rules; belt and suspenders.
Trust but verify that all employees involved in the process are performing all their duties as required by FHA. Pressure can make people do some strange things. Take a look at what’s going on at Wells Fargo. The pressure on some employees to do more with less may lead them down some shortcuts that could be a dead end or one that could cost you quite a bit of money to find your way back.
Train employees and review their performance and their loans to protect them and the company. There is no substitute for quality and compliance. Invest the time and money to make sure things are being done right or you may be paying much more down the road when FHA or DOJ finds out it isn’t.
Be proactive, not reactive and lend responsibly my friends.