Civil War's False Claims Act still the catch-all

December 13, 2018

Daily Mortgage News and Commentary--Rob Chrisman

The United States Department of Justice announced that Finance of America Mortgage, LLC has agreed to pay $14.5 million to settle a False Claims Act lawsuit involving mortgage fraud. The lawsuit relates to FHA loans originated by Gateway Funding Diversified Mortgage Services LP, which FAM acquired in 2015. The settlement resulted from a lawsuit filed under the qui tam whistleblower provisions of the False Claims Act by Debra McGeehan, a former quality control underwriter for Gateway. Ms. McGeehan, who receives $2.4 million, worked for Gateway during portions of 2009 to 2015. "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," said McGeehan. "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." HUD's requirements require that lenders self-report loans that lenders determine have underwriting errors.

"According to the settlement agreement, Gateway did not maintain a proper quality control program as required by HUD for participation in the FHA program. While several of Gateway's management team notified the company that Gateway's loans had a high default rate, Gateway did not comply with HUD's self-reporting obligations. For example, in a February 2014 email, Gateway's SVP of Compliance and Credit Risk sent an email to Gateway's executive team noting that there were specific underwriters and branch offices 'who show a pattern of poor performance.' While Gateway identified loans during the quality control process that had material underwriting errors, Gateway did not routinely report those errors to HUD, as required. As a result, HUD incurred substantial losses when those loans defaulted and insurance payments were subsequently paid to Gateway."

Click here to read the DOJ release.

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