Residential Home Funding Corp., a mortgage lender based in New York, committed Federal Housing Administration mortgage fraud by falsely certifying that certain loans qualified for FHA mortgage insurance, the company admitted in court this week.
Residential Home Funding's admittance came as part of a settlement with the Department of Justice, which will see the lender pay a fine of $1.67 million for its actions.
The settlement stems from a lawsuit brought by the DOJ, which accused Residential Home Funding of failing to maintain a compliant quality control program and approving loans for FHA insurance that failed to meet the requirements established by the Department of Housing and Urban Development.
As with many other lenders that recently settled with the DOJ over FHA lending issues, Residential Home Funding served as a “direct endorsement lender” in the FHA insurance program, which grants lenders 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, Residential Home Funding participated in in the DEL program from 2006 through 2012. During that period, HUD required DEL lenders to follow HUD’s program rules, including its underwriting requirements and its requirement that lenders maintain a compliant quality control program.
Per the DOJ, a compliant quality control program “must include procedures to ensure that the lender reviews loans for compliance with HUD requirements, promptly discloses to HUD all loans containing evidence of fraud or other serious underwriting problems, and conducts a full review of all loans that go into default within the first six payments.”
And according to the DOJ, Residential Home Funding failed to comply will all three of those requirements and “routinely” approved loans for FHA insurance that did not meet FHA underwriting standards.
In spite of these “failures,” the DOJ said that Residential Home Funding repeatedly, fraudulently certified that its loans conformed to all HUD and FHA standards.
As part of the settlement, the company admitted to and “accepted responsibility” for the following actions:
- Residential Home failed to conform to the HUD and FHA rules requiring DEL lenders to maintain a compliant quality control program by, among other things:
- Not taking action to address loans with underwriting deficiencies that were identified through Residential Home’s own quality assurance review process
- Not reviewing early payment default loans
- Not reporting to HUD loans that were identified in Residential Home’s quality control reviews as having indicia of fraud or other serious deficiencies
- Contrary to representations in Residential Home’s annual certifications, Residential Home did not conform to all applicable HUD and FHA regulations
- Residential Home endorsed for FHA mortgage insurance loans that did not meet all underwriting requirements contained in HUD’s handbooks and mortgagee letters
- Residential Home submitted to HUD and FHA loan-level certifications stating that loans were eligible for FHA mortgage insurance when in fact they were not
As part of the settlement, Residential Home Funding agreed to pay $1.67 million, which, according to the DOJ, is based on the company’s financial ability to pay after a review of the company’s financial records.
Residential Home Funding also agreed to retain an independent compliance consultant to ensure its compliance with the rules of the DEL Program.
“We are committed to holding lenders accountable when they recklessly approve loans for FHA insurance and then fail to live up to their promises to HUD,” Joon Kim, the Acting United States Attorney for the Southern District of New York, said in a statement. “With this settlement, Residential Home accepts responsibility for its conduct and will pay $1.67 million.”