Big bank to pay $200m, admit deficiencies in mortgage settlement

by Ryan Smith30 Jun 2014
Editor's note: Updated at 2:06 p.m. to include a statement from US Bank.

A large bank has agreed to pay the United States $200 million to resolve allegations of shoddy mortgage originating and underwriting. The bank also admitted to deficiencies in its processes.

US Bank agreed to the settlement in order to end a probe into alleged violations of the False Claims Act. The government contended that the lender knowingly originated and underwrote loans insured by the Federal Housing Administration that didn’t meet requirements.

“By misusing government programs designed to maintain and expand homeownership, US Bank not only wasted taxpayer funds, but inflicted harm on homeowners and the housing market that lasts to this day,” said Stuart F. Delery, assistant attorney general of the Justice Department’s Civil Division. “As this settlement shows, we will continue to hold accountable financial institutions that violate the law by pursuing their own financial interests at the expense of hardworking Americans.”

“U.S. Bank ignored certain lending requirements causing substantial losses to taxpayers,” said Steven M. Dettelbach, US Attorney for the Northern District of Ohio. “This settlement demonstrates that the Department of Justice will not permit lenders to play fast and loose with the rules and stick the American people with their significant tab.”

As part of the settlement, US Bank admitted that it certified FHA-backed loans that didn’t meet Department of Housing and Urban Development underwriting requirements. The lender also admitted that its quality control program wasn’t up to FHA standards and failed to identify deficiencies in loans it certified for FHA insurance.

“This substantial recovery on behalf of the Federal Housing Administration should serve as a vivid reminder of the potential consequences of not following HUD program rules, and the diligence with which we will pursue those that violate them, particularly where lenders such as U.S. Bank take actions to compromise the insurance fund,” said David A. Montoya, HUD inspector general.

Although the Justice Department said that US Bank admitted to several deficiencies, the bank itself said it did not admit "liability" for the issues.

"U.S. Bancorp previously disclosed the investigation, potential claims and the related reasonably possible losses in prior financial statement disclosures. The company cooperated fully with the DOJ investigation and chose to settle this matter for $200 million without an admission of liability to avoid the path of costly and protracted litigation as well as distractions to the business," the bank said in a statement. "U.S. Bancorp has a legacy of being a respected mortgage lender, including a decades-long, strong working relationship with HUD and its FHA loan programs."

While the settlement resolves allegations that US Bank violated federal law by originating deficient FHA loans, it doesn’t prevent further legal action by state and federal authorities for other potential origination, servicing or foreclosure violations, according to the Justice Department.