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Mortgage

Lennar subsidiary Eagle Home Mortgage fined $13.2 million for FHA lending violations

The False Claims Act ain’t dead yet

Despite recent statements from the Department of Housing and Urban Development and the Federal Housing Administration suggesting a lighter tone when it comes to using the False Claims Act to go after FHA lenders, it appears the False Claims Act ain’t dead yet.

The Department of Justice announced Friday that it reached a $13.2 million settlement with Universal American Mortgage Company to resolve allegations that the lender violated the False Claims Act by falsely certifying that it complied with FHA lending standards.

Universal American Mortgage Company is the mortgage subsidiary of Lennar and does business as Eagle Home Mortgage.

The settlement doesn’t come a shock, considering that Lennar disclosed earlier this year that it was facing a DOJ inquiry into its subsidiary’s FHA lending activities.

The settlement means that Lennar’s mortgage company becomes the latest in a long string of companies including Wells FargoFreedom MortgagePHH, and many other lenders that were fined by the government for underwriting mortgages that did not meet FHA standards.

Under the Obama administration, lenders of various sizes, including some of the nation’s largest, agreed to pay out billions of dollars in settlements under the guise of the False Claims Act.

But the Trump administration has signaled a different way of doing things, giving some indication that the government may abandon the use of the False Claims Act in FHA lending cases altogether.

But, earlier this week, FHA Commissioner Brian Montgomery told the crowd at the Mortgage Bankers Association 2018 Annual Conference in Washington, D.C. that the administration still plans to go after “bad actors” in FHA lending.

And now, it’s Eagle Home Mortgage in the DOJ crosshairs.

As with many of the other lenders, Eagle Home 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.

The DOJ alleged that between Jan. 1, 2006, and Dec. 31, 2011, Eagle Home knowingly submitted loans for FHA insurance that did not qualify. The DOJ also alleged that the mortgage company “improperly incentivized underwriters and knowingly failed to perform quality control reviews,” which violated HUD rules and contributed to Eagle Home’s submission of defective loans.

“Mortgage lenders may not ignore material FHA requirements designed to reduce the risk that borrowers will be unable to afford their homes and federal funds will be wasted,” said Assistant Attorney General Joseph Hunt for the Department of Justice’s Civil Division. “We will hold accountable entities that knowingly fail to follow important federal program requirements.”

And now, Eagle Home will pay $13.2 million to settle the DOJ’s charges, an amount far smaller than many other False Claims Act settlements in recent years.

In other False Claims Act settlements, the government imposed triple damages (called “trebling”), but it’s unclear if that took place in this case, although lessening the level of damages has been something that’s been discussed via the Trump administration’s approach to FHA enforcement.

Regardless, Eagle Home is settling and moving on.

“In a quest for profits, mortgage companies have ignored important lending standards,” said U.S. Attorney Annette Hayes for the Western District of Washington.  “Not only does this harm the borrowers leaving them over their heads in debt and underwater on their mortgages, it harms taxpayers because the mortgages are backed by government insurance. This settlement should serve as a warning to other lenders to diligently follow the rules.”

When asked about the settlement, a Lennar spokesperson said simply: "The settlement was previously reserved for and will not impact future earnings."

[Update: This article has been updated with a statement from Lennar.]

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