Birmingham, Alabama-based Regions Bank has agreed to pay the U.S. government $52.4 million to resolve allegations that it violated the False Claims Act by knowingly underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements, the Department of Justice announced Tuesday.
Due to Regions’ omissions and compliance failures, HUD insured hundreds of loans that were not eligible for FHA mortgage insurance under the DEL program and that HUD would not otherwise have insured. HUD suffered substantial losses as a result of paying the ineligible mortgage insurance claims.
Regions Bank Responsible for Verifying Compliance on FHA-Insured Mortgage Approvals
For more than 10 years, Regions has served as a direct endorsement lender (DEL) in the FHA insurance program. DELs have authorization to originate, underwrite and endorse mortgages for FHA insurance. When the DEL approves a mortgage loan for FHA insurance and the loan defaults, the loan holder can submit an insurance claim to HUD for any losses resulting from the default.
As the FHA does not review a DEL-approved loan before endorsing it for FHA insurance, DELs must follow a set of program rules designed to ensure the proper underwriting and certification of mortgages for FHA insurance. It is the sole responsibility of the DEL to verify compliance.
Regions Fails To Comply With HUD Underwriting, Quality Control and Self-Reporting Requirements
Regions admitted that between January 1, 2006 and December 31, 2011, it certified FHA insurance certain mortgage loans that did not meet HUD underwriting requirements concerning borrower creditworthiness.
“FHA-approved lenders have a responsibility to ensure that FHA-insured loans meet our standards, which are in place for the protection of FHA’s insurance fund,” said Helen Kanovsky, HUD’s General Counsel. “The agreement we announce today should serve as a reminder that sustainable homeownership starts with compliance with underwriting requirements.”
In addition, Regions Bank allegedly failed to maintain a quality control (QC) program adequately in compliance with HUD requirements. The Regions QC program did not review an adequate sample of FHA-insured loans on a regular basis, and when the QC program did identify deficiencies, Regions reportedly “engaged in a pattern of ‘curing’ QC findings by obtaining documentation unavailable to the underwriter at the time of loan approval.” This dodgy practice resulted in senior management receiving an understated defect rate.
Intentional Failure to Self Report Fraud and Early Payment Default Allegations
Moreover, Regions failed to comply with HUD’s self-reporting requirements. The HUD Handbook requires lenders to report “findings of fraud, other serious violations and serious material deficiencies” to HUD. Regions identified several FHA-insured loans that contained material deficiencies in monthly QC reviews prior to 2011, yet did not self-report the deficient loans to HUD until 2011.
Regions also failed to review Early Payment Default (EPD) loans in compliance with HUD guidelines. Guidelines require review of all EPD loans that are 60 days past due within the first six months. In a number of circumstances, Regions reviewed only EPD loans that were 90 days past due.
“Mortgage lenders that participate in the FHA insurance program must follow the requirements intended to safeguard its integrity and to protect homeowners,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “We will continue to hold responsible lenders that knowingly violate these important requirements.”
FHA Insurance Program Lender Misconduct Puts Housing Market Stability at Risk
“The FHA insurance program plays a critical role in the stability of the housing market,” said U.S. Attorney for the Middle District of Florida A. Lee Bentley III. “Lender misconduct that puts this program at risk will not be tolerated.”
Regions agreed to pay the U.S. government $52.4 million in full. Whistleblowers with information regarding False Claims Act violations are eligible to receive between 15% and 30% of any government recovery when they are the first to report fraud. According to the Department of Justice, the claims asserted against Regions are allegations only, and there has been no determination of liability.
“This settlement resolves allegations that a financial institution, trusted to comply with FHA loan origination, underwriting and quality control requirements, failed to meet its obligations as a participant in the FHA program,” said Inspector General David A. Montoya for HUD. “The bank’s actions impact the solvency of the FHA insurance fund. It is through the combined efforts of the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Middle District of Florida, HUD and the Office of Inspector General that we continue to ensure the integrity of this important FHA program to American homeowners.”