PHH Corp. announced it finally settled with the U.S. Department of Justice on behalf of the Department of Housing and Urban Development and separately with the DOJ on behalf of the U.S. Department of Veterans Affairs and the Federal Housing Finance Agency in order to resolve certain previously disclosed matters regarding legacy mortgage origination and underwriting activities.
As a result, PHH will pay approximately $75 million to the DOJ, which the company prepared for during the second quarter of 2017. At the time, PHH increased its recorded liability for legal and regulatory reserves by $13 million, reflecting adjustments for these settlements and provisions for other matters.
“We have agreed to resolve these matters, which cover certain legacy origination and underwriting activities, without admitting liability, in order to avoid the distraction and expense of potential litigation,” PHH said in a statement.
“While we cooperated fully in these investigations since receiving subpoenas in 2013, we concluded that settling these matters is in the best interest of PHH and its constituents. Adhering to high legal, regulatory and ethical standards is at the core of how we conduct business, and we remain committed to serving our customers and all of our stakeholders consistent with that principle,” it continued.
PHH added that the settlement agreements cover certain mortgage loans insured by the Federal Housing Administration during the period between Jan. 1, 2006 and Dec. 31, 2011, certain mortgage loans insured by the VA, and certain mortgage loans sold to Fannie Mae and Freddie Mac.
Separately, key parts of the settlement came to fruition thanks to a whistleblower. Mary Bozzelli, a former employee of PHH, filed a lawsuit under the qui tam whistleblower provisions of the False Claims Act. Bozzelli worked for PHH from 1992 to 2011 as an underwriter and underwriting supervisor.
Due to her contributions to the settlement, the United States awarded Bozzelli more than $9 million for the role she played in blowing the whistle on PHH's mortgage fraud.
"It is great to see PHH finally held accountable for its actions," said Bozzelli, who filed the lawsuit in 2013. "Mortgage fraud is hardly victimless. Not only did PHH defraud taxpayers, but instead of helping deserving borrowers obtain home loans through the government loan programs, I witnessed firsthand the ways in which PHH abused the programs to line its own pockets."
The industry has started pushing back against this type of settlement.
David Stevens, president and CEO of the Mortgage Bankers Association, expressed his opposition to the increased prosecutions under the False Claims Act in a HousingWire blog.
Stevens wrote: “In addressing the housing crisis and the Great Recession, the Obama Administration was searching for ways to increase enforcement actions against lenders that were originators or servicers of large volumes of loans that went into default. In February 2012, the DOJ and HUD announced a $25 billion settlement against the U.S.’s five largest mortgage servicers. But clearly the $25 billion was not enough and the Administration began to search for additional mechanisms for punishing FHA lenders...
"The broad use of FCA has resulted in excessive penalties often for immaterial mistakes made during the loan process prior to settlement that made no difference to the quality of the loan or the decision to approve that loan."
And PHH isn’t the only lender dealing with the DOJ over the False Claims Act.
Quicken Loans, which is the nation's largest Federal Housing Administration-backed mortgage lender, sued the DOJ and HUD in April 2015. Quicken accused the Justice Department of trying to squeeze money from companies which would usually wish to avoid a costly legal battle against FHA violation charges. Instead of paying up, Quicken said it decided to fight back in court.
The government was quick to react and countersued Quicken Loans. In the United States government’s lawsuit, it accused Quicken Loans of improperly originating and underwriting loans insured by the FHA.
And while Quicken Loans hit a roadblock in December when a federal judge tossed out its lawsuit, it will continue to fight to defeat the government’s retaliatory lawsuit alleging that Quicken Loans violated the ‘False Claims Act.’