Government LendingRegulatory

HUD, DOJ changing use of False Claims Act in order to bring big banks back to FHA lending

Carson planning to announce plans during speech at MBA Annual in Austin

The government’s use of the False Claims Act to extract massive settlements from the mortgage lending industry is about to take a significant step in the opposite direction.

Two years after telling the crowd at the Mortgage Bankers Association Annual Conference in Denver that the Department of Housing and Urban Development was working with the Department of Justice to address the rise of DOJ enforcement in Federal Housing Administration lending, HUD Secretary Ben Carson is planning to make an official announcement on Monday at MBA Annual in Austin on a new approach to FHA lending enforcement.

The bottom line? The agencies are easing the use of the False Claims Act in order to bring banks back to FHA lending.

According to FHA Commissioner Brian Montgomery, HUD, FHA, and the DOJ have agreed to a memorandum of understanding, which is to be announced on Monday.

The document will lay out a new policy for how the agencies will work together to ease the use of the False Claims Act in FHA enforcement.

In recent years, many of the nation’s largest banks moved away from FHA lending, scared off by the government’s increased use of the False Claims Act as a means to extract massive settlements from FHA lenders.

On a call with reporters Monday morning, FHA Commissioner Brian Montgomery said that the DOJ’s previous use of the False Claims Act resulted in approximately $7 billion in recoveries from lenders.

But the approach to the use of the False Claims Act changed under the Trump administration.

In fact, Montgomery said last year that he believes the Obama administration went too far in some cases and said that the Trump administration is planning on dialing back the use of the False Claims Act to bring more lenders back into FHA lending.

Bank of America, [JPMorgan] Chase, and others barely offer the FHA product anymore. A lot of folks rely on a branch location. At last count, the largest depositories have more than 15,000 locations,” Montgomery told a group of reporters last year.

“Quite a number of those have a loan officer in them. It just seems odd to me that if you walked into one of those and said we want to talk to you about an FHA loan, they’d tell you that we can’t help you,” Montgomery continued.

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 auspice of the False Claims Act.

Those efforts changed the complexion of FHA lending, with depositories like JPMorgan Chase moving away and nonbanks like Quicken Loans filling the gaps.

Two years ago, JPMorgan Chase CEO Jamie Dimon cited the False Claims Act as a reason that the bank moved away from FHA lending.

But now, HUD and the FHA want to bring big banks back to FHA lending, and they’ve reached an agreement with the DOJ that they believe will accomplish that goal.

Carson will share more details about the plan in his speech Monday morning at the 2019 MBA Annual Conference in Austin, but FHA lending is likely about to get a whole lot more attractive to banks.

Check back with HousingWire for more details as they become available.

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