Finance of America Mortgage, a Blackstone portfolio company, has agreed to pay the U.S. government $14.5 million to settle a whistleblower lawsuit involving mortgage fraud.
The payment settles the claim that Gateway Funding Diversified Mortgage Services, one of several companies FAM acquired in 2015, knowingly originated and underwrote deficient mortgage loans insured by the Federal Housing Administration in violation of the False Claims Act.
As a direct endorsement lender participating in the FHA’s loan program, Gateway was required to follow specific underwriting guidelines, maintain a quality control program and report deficient loans to the Department of Housing and Urban Development.
But according to the Department of Justice, Gateway failed to audit all early-payment default loans as required, and when it did perform an audit, it did not act on calls from compliance regarding concerns about the quality of these loans.
The lawsuit alleged that when Gateway team members alerted executives that the lender’s loans had a high default rate, and that specific branches and underwriters were displaying “a pattern of poor performance,” nothing was done to address the problem.
Gateway admitted that it did not adhere to HUD’s self-reporting requirement for deficient loans, and acknowledged it approved loans for FHA insurance that were not eligible. As a result, HUD incurred significant losses when those loans defaulted and insurance payments were made to Gateway.
“Gateway misrepresented that its federally insured loans met HUD’s quality standards, harming borrowers who were left underwater on their homes and taxpayers who backed the mortgages,” said United States Attorney Grant Jaquith. “We are committed to holding mortgage lenders accountable when they abuse government programs for their own gain.”