In a show of force and a message to other would-be violators, the DOJ reached
an agreement with Freedom Mortgage of New Jersey for $113 million. The
deal ends an investigation into the mortgage originator’s compliance
failures involving FHA-insured loans.
In April, the DOJ announced that Freedom Mortgage committed violations
of the False Claims Act between 2006 and 2011. The settlement with Freedom
is not the first of its type with the FHA. Several other mortgage lenders
have likewise entered into agreements to settle claims of violating FHA
Paul J. Fishman, U.S. Attorney for the District of New Jersey, said that
Freedom Mortgage did not fully comply with FHA rules for the origination
of mortgages and failed with default monitoring requirements. Also, when
it did discover defaults, it neglected to report them to the HUD, as the
program dictates. The “settlement recognizes those failures and
imposes an appropriate sanction.”
The agreement apparently won’t deter Freedom from continuing to offer
future FHA products. A company spokesperson said that the settlement would
not affect the ability of Freedom Mortgage to continue to provide FHA-insured loans.
Spokesperson Audrey Shapiro stated that Freedom Mortgage made a business
decision, without admitting liability, to close the issue and avoid possible
lengthy litigation. She went on to say that the company wishes to close
the book on the investigation and get back to what it does best –
providing loans to consumers.
The DOJ and HUD’s inspector general continue to investigate other
companies for violations of the False Claim Act. The review could lead
to additional settlements with several other lenders over the next year.
The agreements have taken their toll on some lenders. After entering into
settlements, mortgage originators have decided to stop offering FHA loans.
The actions have caused other lenders to strengthen their internal procedures
in an attempt to head off any future agency action against their organizations.
To reassure mortgage originators, the FHA announced preliminary revisions
to certification requirements that won’t place liability on lenders
for small mistakes made during the origination process. An assistant secretary
for the FHA issued a statement claiming that the changes made to the rules
will provide lenders with a clear understand of the certification process
and an indication of what type of minor mistakes might be forgiven.
Although the FHA is attempting to calm an already nervous market, many
lenders remain skeptical that the federal agencies will overlook minor
errors on their loan originations. The continued agency crackdown on government-backed
loan violations is likely to deter some lenders from offering these products.
Until lenders feel they fully understand the intricacies of the regulations
and are confident they are meeting compliance requirements, the future
may see less FHA-insured products being made available to consumers.
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consultation, please contact Nema Daghbandan or call our main office at