Lending Servicing

Walter Investment fined $29.6 million for False Claims Act violations

Subsidiaries allegedly submitted false reverse mortgage claims to HUD

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Walter Investment Management Corp. (WAC) will pay $29.63 million in fines for violations of the False Claims Act to settle charges brought by the Department of Justice, which accused several Walter Investment subsidiaries of submitting false reverse mortgage claims to the Department of Housing and Urban Development.

The settlement was announced by the Justice Department Friday. According to the DOJ, Walter Investment subsidiaries Reverse Mortgage Solution Inc., REO Management Solutions and RMS Asset Management Solutions violated the False Claims Act in connection with their participation in HUD’s Home Equity Conversion Mortgages program.

The government alleged that, from August 2009 to March 2015, Reverse Mortgage Solution, with the “knowledge and support” of its corporate parent, Walter Investment, submitted false claims for debenture interest from HUD by failing to properly disclose that it had not met certain deadlines and, therefore, was not entitled to such interest payments.

The government also alleged that from July 2010 to October 2014, Walter Investment, through its subsidiaries, submitted false claims to HUD for the reimbursement of unlawful referral fees by falsely representing them to be lawful sales commissions. 

According to the government, Reverse Mortgage Solution used straw companies to liquidate foreclosed properties. 

In a release, the DOJ said that upon sale of the foreclosed property, the straw companies split the 6% sales commissions: the real estate agents shared a 5% sales commission and the companies kept a 1% referral fee.

The DOJ said that these straw companies deducted a small fee from the 1% referral fee and paid the rest back to Reverse Mortgage Solution in the form of kickbacks. 

Despite that fact, Reverse Mortgage Solution submitted insurance claims to HUD that included payment for the full 6% sales commission, when the payment actually included a prohibited referral fee.

In a statement issued Friday, Walter Investment said that the final settlement does not contain an admission or finding of wrongdoing by Walter Investment or its subsidiaries.

“We believe this resolution is in the best interest of the Company and our shareholders and are pleased to have resolved these claims,” said Mark O'Brien, chairman and chief executive officer of Walter Investment.  “As a leading franchise in the reverse mortgage sector, RMS is fully committed to, and strongly supportive of, the HECM program and the benefits it provides to its customers.”

Walter Investment also stated that the government has released the company and its subsidiaries from potential liability relating to the conduct alleged in the complaint under various federal laws including the False Claims Act.

“The Department of Justice is committed to ensuring that those who service HUD-insured reverse mortgages are held accountable for their knowing failure to comply with important HUD requirements,” said Principal Deputy Assistant Attorney General Benjamin Mizer, head of the Justice Department’s civil division. “Schemes such as these undermine an important tool available to older Americans who wish to use a HUD-insured reverse mortgage loan to age in place.”

The resolved allegations were first raised in a lawsuit by Matthew McDonald, a former executive of Reverse Mortgage Solution, under the whistleblower provisions of the False Claims Act. 

The False Claims Act permits private individuals to sue on behalf of the government for false claims and to share in any recovery. The False Claims Act also permits the government to intervene in such lawsuits, as it did in this case, the DOJ said. 

According to the DOJ, McDonald will receive $5.15 million as his share of the recovery in this case.

“This settlement demonstrates my office’s commitment to holding accountable those who seek to undermine the Department of Housing and Urban Development’s financial programs serving homeowners and, particularly, our elderly citizens, who are often most in need of the benefits of the reverse mortgage loan program,” said HUD Inspector General David Montoya.

“Today’s settlement is another example that we are serious about making certain our approved lenders are complying with FHA requirements,” said HUD General Counsel Helen Kanovsky. “This is a significant settlement concerning FHA’s reverse mortgage program, which is designed to benefit America’s seniors. We’re pleased that Walter Investment agreed to accept financial responsibility for these violations.”

This fine represents the second fine incurred by Walter Investment on behalf of one of its subsidiaries in the last few months.

In April, the Consumer Financial Protection Bureau and the Federal Trade Commission announced a $63 million fine against Green Tree Servicing, another subsidiary of Walter Investment, for “mistreating borrowers” who were attempting to save their homes from foreclosure.

According to the CFPB and the FTC, Green Tree failed to honor modifications for loans transferred from other servicers, demanded payments before providing loss mitigation options, delayed decisions on short sales, and harassed and threatened overdue borrowers.

“Green Tree failed consumers who were struggling by prioritizing collecting payments over helping homeowners,” CFPB Director Richard Cordray said at the time. “When homeowners in distress had their mortgages transferred to Green Tree, their previous foreclosure relief plans were not maintained. We are holding Green Tree accountable for its unlawful conduct.”

Earlier this week, Walter Investment announced that it completed the merger of Green Tree with another of Walter Investment’s well-known subsidiaries, Ditech Mortgage Corp, to form a new company, ditech, a Walter company, thus leaving Green Tree’s legacy behind.

[Update: This article has been updated to include a statement from Walter Investment.]

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