Finance of America Mortgage (FAM) will pay $14.5 million to settle allegations of mortgage fraud, according to the Department of Justice. The lawsuit involves Federal Housing Administration loans originated by Gateway Funding Diversified Mortgage Services. Gateway was acquired by FAM in 2015.
The lawsuit was filed under the whistleblower provisions of the False Claims Act by former Gateway employee Debra McGeehan, who worked for Gateway as a quality control underwriter.
Under the Department of Housing and Urban Development’s FHA mortgage program, HUD insures FHA loans that meet the department’s requirements. Lenders can seek compensation from HUD for any loss sustained when a borrower defaults on a loan. However, HUD requires lenders to self-report loans that they determine to have underwriting errors.
The lawsuit alleged that Gateway didn’t maintain a proper quality-control program – a requirement for participation in the FHA program. Even though several members of Gateway’s management team notified the company that its loans had high default rates, Gateway allegedly didn’t comply with HUD self-reporting requirements. For example, in an email from 2014, Gateway’s senior vice president of compliance and credit risk notified the company’s executive team that there were specific underwriters and branch offices “who show a pattern of poor performance.” And while Gateway identified loans with material underwriting errors during its quality-control process, it allegedly routinely failed to report those errors to HUD.
“It is extremely frustrating when a mortgage company identifies issues with loans as part of its quality-control process, but then deliberately ignores those findings,” McGeehan said. “Gateway was only interested in its own financial interests, and was willing to ignore its own quality-control findings in order to defraud the FHA program.”
As part of the settlement, the United States is awarding McGeehan nearly $2.4 million for blowing the whistle on the fraud.
FAM’s settlement is just one of dozens of mortgage-fraud-related settlements with lenders over the past few years, according to McGeehan’s attorney, Patrick Solomon.
“It is very unfortunate that lenders continue to abuse the FHA mortgage program in underwriting loans that do not qualify for FHA insurance,” Solomon said. “Ten years after the subprime crisis, lenders continue to see FHA loans as an area that can be exploited. FHA mortgage fraud continues to be the norm, not the exception.”