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American Financial Network to pay $1M fee to resolve fraud allegations

Settlement agreement puts an end to a joint federal investigation

Brea, California-based direct lender American Financial Network will pay about $1.04 million to resolve allegations that it fraudulently originated government-backed mortgage loans insured by the Federal Housing Administration (FHA).

The settlement agreement announced by the United States Attorney for the Eastern District of Washington on Tuesday puts an end to a joint investigation conducted by the U.S. Attorney’s Office for the Eastern District of Washington, U.S. Department of Housing and Urban Development (HUD), and the U.S. Department of Veterans Affairs after a former loan processor with AFN filed a lawsuit against the California lender in March 2019. 

The whistleblower claimed AFN knowingly underwrote certain FHA mortgages and approved for some mortgage insurance that didn’t meet FHA requirements or qualify for insurance between December 2011 and March 2019. AFN knowingly failed to perform quality control reviews that it was required to conduct, the former AFN loan processor alleged. AFN did not respond to requests for comment. 

“Quality and affordable housing is a critical issue in Eastern Washington and across the nation,” U.S. Attorney Vanessa Waldref said in a statement. “By improperly originating ineligible mortgages, lenders take advantage of the limited resources of the FHA program and unfairly pass the risk of loss onto the public.”

AFN, a participant of FHA’s Direct Endorsement Program since at least 2011, is responsible for carefully underwriting the mortgage to make sure it meets all FHA requirements, according to the U.S. Attorney’s office. Once a mortgage loan is insured by the FHA, the lender that holds the mortgage note can submit a claim for insurance benefits to FHA to cover its losses if the borrower defaults or is unable to repay the mortgage.

When a whistleblower, or “relator” files a lawsuit, the U.S. investigates the allegations under the False Claims Act and chooses whether to intervene and take over the action or to decline to intervene and allow the relator to proceed with the allegation on behalf of the U.S.

“Investigations such as these help safeguard the integrity of the home loan approval process and protect vulnerable veterans from fraudulent lending practices,” Jason Root, special agent in charge of the Department of Veterans Affairs office of inspector general’s northwest field office said in a statement.  

AFN did not admit to any wrongdoing. Per the settlement agreement, the former loan processor at AFN will receive more $228,172 of the settlement proceeds and will recover attorney fees, expenses, and costs. 

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