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United Shore lands on DOJ hit list, will pay $48M for FHA lending violations

Next in long line of lenders accused of violating False Claims Act

Money

United Shore Financial Services will pay $48 million to settle allegations brought by the Department of Justice, which accused United Shore of violating the False Claims Act by “knowingly originating and underwriting” mortgages that did not meet Federal Housing Administration standards, the DOJ announced Wednesday.

The settlement makes United Shore just the latest in a long line of mortgage lenders that settled with the DOJ over alleged FHA lending violations.

In recent months, Wells Fargo agreed to a $1.2 billion settlement, while Franklin American settled with the government for $70 millionWalter Investment settled for $29.6 millionFirst Tennessee, the regional bank for First Horizon National, settled for $212.5 millionM&T Bank settled for $64 millionFreedom Mortgage agreed to pay $113 millionRegions Bank settled for $52.4 million, and BB&T settled for $83 million – all to settle similar allegations.

And that list does not include two lenders – Quicken Loans or Guild Mortgage – that are fighting back after the DOJ accused each of similar actions.

Now, United Shore, one of the nation’s largest wholesale mortgage lenders, becomes the next name on the DOJ’s list.

According to the DOJ, the settlement with United Shore resolves allegations about the company’s FHA lending program between Jan. 1, 2006 and Dec. 31, 2011.

During that time period, the DOJ claimed that United Shore “failed to comply with certain FHA origination, underwriting and quality control requirements.”

As with many of the other lenders, during the time period referenced, United Shore acted as a “direct endorsement lender” in the FHA insurance program. As a direct endorsement lender, the lender has the authority to originate, underwrite and endorse mortgages for FHA insurance without prior approval from the FHA.

Under the direct endorsement lender program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance.

According to the DOJ, United Shore did not underwrite loans to the FHA standard.

Per the DOJ, as part of the settlement, United Shore admitted to the improperly pressuring underwriters to approve FHA mortgages. Additionally, United Shore’s compensation plan used a formula expressly tying underwriter compensation to the percentage of loans approved by the underwriter and closed by United Shore, the DOJ said.

The DOJ also said that United Shore falsely certified that direct endorsement underwriters personally reviewed appraisal reports prior to United Shore approving and endorsing mortgages for FHA insurance.

The DOJ also stated that despite United Shore’s internal QC reviews showing “severe problems” with some FHA mortgages, the company “routinely failed” to provide any “meaningful information” to senior management about the QC findings.

United Shore also failed to follows the Department of Housing and Urban Development’s self-reporting requirements, as United Shore’s internal QC reviews identified hundreds of “materially-deficient FHA insured loans” during the time period in question, but only self-reported three such loans to HUD.

According to the DOJ, as a result of United Shore’s “conduct and omissions,” HUD insured hundreds of loans that were not actually eligible for FHA insurance. Therefore, HUD incurred “substantial losses” when it paid insurance claims on those loans.

Additionally, the DOJ said that on Jan. 10, 2014, after the DOJ began its investigation into United Shore, the company made “certain discretionary distributions” to one the company’s shareholders.

“The settlement announced today holds United Shore accountable for its endorsement of ineligible loans for FHA mortgage insurance,” Principal Deputy Assistant Attorney General Benjamin Mizer, head of the Justice Department’s Civil Division, said.

“Over the past several years, the Civil Division, in collaboration with numerous U.S. Attorneys’ Offices, HUD and its Office of Inspector General, has diligently worked to hold FHA-approved lenders accountable for actions that deprived homeowners of their homes, wasted taxpayer funds, and contributed to the financial crisis,” Mizer continued. “The settlement announced today is yet another success in this continuing effort.”

U.S. Attorney for the Western District of Wisconsin John Vaudreuil noted that United Shore acknowledged that its underwriting standards did not meet the appropriate requirements.

“United Shore acknowledged that it failed to comply with FHA underwriting and quality control requirements, resulting in improperly originated mortgages,” Vaudreuil said. “While United Shore deserves credit for acknowledging and resolving its conduct, that conduct not only resulted in substantial losses of public funds, but also put Wisconsin homeowners at risk of losing their homes or ruining their credit. This large settlement should send a clear message that such conduct will not be tolerated.”

When contacted by HousingWire, a spokesperson for United Shore said that Mat Ishbia, the company’s president, is currently unavailable for comment.

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