WASHINGTON–PHH Mortgage Corp. and PHH Home Loans have agreed to pay a fine of nearly $75 million to resolve allegations that they violated the False Claims Act.
According to the Department of Justice, the companies knowingly originated and underwrote mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA), guaranteed by the United States Department of Veterans Affairs (VA), and purchased by Fannie Mae and Freddie Mac that did not meet applicable requirements. PHH is headquartered in Mount Laurel, N.J., and PHH Home Loans operates in Edina, Minn. PHH has agreed to pay $65 million to resolve the FHA allegations and $9.45 million to resolve the VA and FHFA allegations, the Justice Department said.
“Government mortgage programs designed to assist homeowners — including programs offered by the FHA, VA, Fannie Mae and Freddie Mac — depend on lenders to approve only eligible loans,” said Acting Assistant Attorney General Chad A. Readler, head of the Justice Department’s Civil Division.
“This settlement requires PHH to pay back to the taxpayers of the United States millions of dollars in loans that never should have been made,” Acting U.S. Attorney William E. Fitzpatrick for the District of New Jersey said. “By failing to ensure the creditworthiness of borrowers and otherwise failing to make sure the loans met HUD underwriting requirements, loans were insured by FHA that should not have been.”
The settlements resolve allegations that PHH failed to comply with certain FHA, VA, Fannie Mae and Freddie Mac origination, underwriting, and quality control requirements.
According to the Justice Dept., since at least January 2006, PHH has participated as a Direct Endorsement lender (DEL) in the FHA insurance program. A DEL has the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan. Under the DEL program, the FHA does not review a loan before it is endorsed for FHA insurance for compliance with FHA’s credit and eligibility standards, but instead relies on the efforts of the DEL to verify compliance. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance.