Mortgage

Sierra Pacific Mortgage fined $3.67 million for FHA lending violations

Accused of knowingly submitting loans for FHA insurance that didn’t qualify

Sierra Pacific Mortgage will pay a fine of $3.67 million to settle allegations that the company knowingly violated Federal Housing Administration lending standards more than a decade ago.

According to the U.S. Attorney’s Office, Sierra Pacific was accused of violating the False Claims Act by falsely certifying that it complied with FHA mortgage insurance requirements in connection with certain loans made between 2007 and 2009.

During the time period in question, Sierra Pacific 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 U.S. Attorney’s Office, during that time, Sierra Pacific submitted loans for FHA insurance that it knew did not qualify. The government also claimed that Sierra Pacific “failed to properly respond to internal warning signs that its loans were poorly underwritten and failed to properly implement a quality control program once it was aware of those warning signs.”

After an investigation that began in 2013 and escalated in 2016, the two sides are now choosing to settle the charges, with Sierra Pacific not admitting liability in the matter.

With the settlement, Sierra Pacific becomes the latest in a long string of lenders that settled with the government under the auspices of the False Claims Act.

The Department of Justice under President Barack Obama accused a number of lenders of violating the False Claims Act by knowingly originating and underwriting mortgages that did not meet FHA standards.

But, the Trump administration has taken a different path, with both FHA Commissioner Brian Montgomery and HUD Secretary Ben Carson saying that the administration planned to back off of using the False Claims Act to go after FHA lenders.

One way that the Trump administration has certainly deviated from its predecessor is the size of the fines under the False Claims Act. 

Under the Obama administration, Wells Fargo reached a $1.2 billion settlement; First Tennessee, the regional bank for First Horizon National, settled for $212.5 million; Freedom Mortgage agreed to pay $113 million; and PHH Corp. settled for $75 million, for example.

Under the Trump administration, the fines have been much smaller. IBERIABANK CorporationIBERIABANK and IBERIABANK Mortgage reached an $11.7 million settlement, while Eagle Home Mortgage settled for $13.2 million.

Now, it’s Sierra Pacific’s turn, and the fine is $3.67 million.

“The wrongful actions of SPM were not minor mistakes or foot faults,” HUD General Counsel Paul Compton said in a statement. “There is no room at FHA for lenders who knowingly violate the trust placed in them as direct endorsement lenders.”

HousingWire contacted Sierra Pacific for comment on the settlement, and this article will be updated should the company respond.

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