The United States Department of Justice (USDOJ) announced yesterday that Financial Freedom has agreed to a $89 million settlement with the U.S government to resolve a lawsuit for an alleged fraud involving federally insured reverse mortgages, also known as “Home Equity Conversion Mortgages (HECM).”
Reverse mortgages are designed for senior citizen borrowers who are at least 62 years of age or older. These loans allow older borrowers who have at least a 65% loan to value to tap their equity in order to receive fixed monthly payments and or a flexible line of credit. These mortgages become due and payable when the home is sold or vacant for more than 12 months or upon the death of the homeowner, whichever comes first.
The Federal Housing Administration (FHA) protects lenders from loss by providing mortgage insurance by repaying lenders who are unable to recoup the full amount of the loan. The FHA insurance will cover the amount of the loan, including the costs of servicing the loan and any interest that accrues on lender expenses after a loan becomes due and payable as long as the servicer meets a number of regulatory requirements and deadlines.
The USDOJ said that the United States alleged that Financial Freedom sought to obtain insurance payments for interest from FHA despite failing to properly disclose on the insurance claim forms it filed with the agency that the mortgagee was not eligible for such interest payments because it had failed to meet various deadlines relating to appraisal of the property, submission of claims to HUD, and pursuit of foreclosure proceedings. As a result, from March 31, 2011 to August 31, 2016, the mortgagees on the relevant reverse mortgage loans serviced by Financial Freedom allegedly obtained additional interest that they were not entitled to receive.
According to the Justice Department, the Austin Texas lender was originally investigated after a whistleblower, Sandra Jolley had alerted authorities to the scheme. Jolley was a consultant for the estates of borrowers who took out reverse mortgage loans. Ms. Sandra Jolley will receive $1.6 million from the settlement.
“The Department of Justice is committed to ensuring that those who participate in federal mortgage insurance programs comply with requirements essential to the success of its programs,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “Among these requirements are the deadlines imposed by the Federal Housing Administration (FHA) on those who service government insured mortgages. Those deadlines are designed to protect the government’s collateral and stop the unnecessary loss of government funds and resources.”
“This settlement represents our office’s continued commitment to protecting the financial solvency of vital financial programs designed to benefit America’s seniors,” said Acting U.S. Attorney Stephen Muldrow of the Middle District of Florida. “HECM servicers must be held accountable for failing to adhere to FHA requirements that are designed to ensure the continued viability of the HECM program. We are pleased that Financial Freedom agreed to accept financial responsibility for these failures.”
“Today’s settlement agreement resolves allegations that this lender failed to comply with FHA servicing requirements and sought to receive financial gains that it was not legally entitled to,” said HUD Inspector General David A. Montoya. “These actions today demonstrate our continued commitment to address and halt business practices that pose a serious risk to the FHA program and the public’s trust in HUD administered programs.”