Home >> Daily Dose >> Franklin American Mortgage Zapped with $70 Million FHA Settlement
Print This Post Print This Post

Franklin American Mortgage Zapped with $70 Million FHA Settlement

paying-moneyFranklin American Mortgage Co. agreed to pay the U.S. government $70 million this past week to resolve allegations that the lender originated loans which failed to meet Federal Housing Administration guidelines.

Government authorities allege Franklin Mortgage violated the False Claims Act by participating in the FHA’s direct lender endorsement program and originating loans as part of the Department of Housing and Urban Development’s lending program that did not meet specific underwriting requirements.

The HUD-FHA program allows participating lenders to receive insurance from the federal government on any FHA loan that later defaults. However, lenders are required to follow specific guidelines at the point of origination to prevent risky lending and unexpected losses for HUD.

“This settlement is another step forward in the government’s efforts to hold lenders accountable for the harm caused by years of improper and inadequate underwriting of mortgages insured by the federal government,” said Principal Deputy Assistant Attorney General Benjamin Mizer, head of the Justice Department’s Civil Division. “As this settlement makes clear, we will hold accountable anyone whose conduct results in loss to the government, whether it is a large bank or a smaller mortgage lender.”

The Department of Housing and Urban Development noted that as part of the settlement, Franklin American admits it certified loans for FHA mortgage insurance during the period running from Jan. 1, 2006, through March 31, 2012, that did not meet HUD underwriting guidelines.

The government claims the work was performed by junior underwriters, who lacked the qualifications to appropriately handle FHA-insured loans.

Post-close audits of many of the issued loans often showed they had failed to pass HUD's guidelines.

“Today’s settlement demonstrates HUD’s commitment to hold lenders accountable for serious violations of FHA requirements,” said General Counsel Helen R. Kanovsky of HUD’s Office of General Counsel. “We’re pleased that Franklin American accepted financial responsibility for its actions, which will restore funds to FHA.”

HUD conducted the investigation in tandem with the U.S. Attorney’s Office of the District of Colorado and HUD’s Office of the Inspector General.

About Author: Kerri Panchuk

x

Check Also

Survey: Homeownership Remains Elusive for Baby Boomer Renters

A recent look into housing affordability by NeighborWorks America has found that three in five long-term baby boomer renters feel homeownership remains unattainable.