Boom in False Claims: FHA-Insured Reverse Mortgages
In general, false claims against the mortgage industry have been profitable for the federal government. Since 2009, over $7 billion in settlements and judgments have been collected from Federal Housing Administration (FHA) lenders who have been accused of loan origination defects in forward (regular) mortgages.
Recently, though, False Claims Act (FCA) cases brought against mortgage providers have shifted gears: now servicers for FHA-insured reverse mortgages are coming under scrutiny by the Department of Justice. Even the former bank owned by U.S. Treasury Secretary Steven Mnuchin’s investor group settled allegations that it submitted false claims to a reverse mortgage program that was federally insured. The $89 million settlement was made public in May, 2017.
Why the FCA Shift to Reverse Mortgages?
As people age, they may need to tap the equity in their homes. With a reverse mortgage, you can borrow money against the value of your home. The Department of Housing and Urban Development (HUD) provides mortgage insurance through the FHA; FHA-administered reverse mortgages are called Home Equity Conversion Mortgages (HECM).
Many of us have heard that reverse mortgages can be complicated for borrowers. But you might not know that they can also be tricky for lenders. Here’s one example: If the reverse mortgage borrower dies, or if the borrower leaves the property for over a year, the servicer is required by HUD to have the property appraised within 30 days of when the mortgage would become due. The appraisal is needed so that HUD and the lender can reach an agreement on the home’s value. Once the value is set, a decision must be made concerning whether to start foreclosure proceedings, deal with the rights of the estate (in cases of death), or engage in what’s known as a workout (a modification of the mortgage’s payment plan). Mortgage servicers who miss the 30-day window to have an appraisal done are not entitled to collect any interest that accrues once the loan becomes due. Thus, it can be a costly mistake to miss the 30-day window, and servicers can be tempted to fudge the date of the appraisal.
Those who service HECM loans must be careful to get every aspect of the loans right. Of course, when the fine print gets thick, sometimes it’s tempting to shade some of the regulations and commit violations of the FCA.
Two cases of note have involved large settlements for reverse mortgage FCA suits:
- Financial Freedom agreed in May, 2017, to pay $89 million to settle allegationsinvolving unearned interest payments it received from FHA for HECMs. This financial entity was part of the bank formerly known as IndyMac that Sec. Mnuchin and his investor group bought and rebranded in 2009.
- Walter Investment Management Corporation (WAC) was fined over $29 million in September, 2015, in order to settle allegations of FCA violations concerning federally-insured reverse mortgages (HECMs). At issue were false claims for interest coupled with a failure to meet certain deadlines, among other allegations. The case was brought by a former executive of a WAC subsidiary under the qui tam provisions of the FCA. The whistleblower received $5.15 million for his share of the recovery.
Cases are often settled before trial because those alleged to have submitted false claims face treble damages should they lose. There is generally no determination of liability when a settlement is reached.
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If you think you have the facts needed to bring a whistleblower case, the experienced whistleblower attorneys at the Louthian Law Firm can review your case and help you file the appropriate disclosure statement. Under some circumstances, the government will intervene, or join in your lawsuit.
Your chances of succeeding are greater if your whistleblower claim is substantive, clear, and to the point. Because of this, meeting with a qualified whistleblower attorney can increase your chances of winning. The Louthian Law Firm can help you form your claim so that the government will be more inclined to intervene in your case; government intervention can sometimes increase the chances of recovering reward money. Even if the government decides not to intervene, it could still be a good idea to pursue your case without government involvement. Our strong support system can assist you through every step of the process.
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