The United States Department of Justice (USDOJ) announced last week that Regions Bank (Regions) has agreed to pay $52.4 million to the U.S. government to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting FHA loans that did not meet applicable requirements.
Regions Bank has been originating and underwriting FHA loans least January 2006 as a direct endorsement lender (DEL) in the FHA insurance program. The U.S. Department of Housing and Urban Development (HUD) Federal Housing Administration (FHA) does not review each loan submitted by approved FHA lenders, but instead relies on the lender to follow the rules and be in compliance at all times.
According to the USDOJ, Regions admitted that the bank had originated FHA loan between Jan. 1, 2006, and Dec. 31, 2011 that did not meet certain HUD underwriting requirements regarding borrower creditworthiness. Regions also failed to maintain a quality control (QC) program and did not consistently review an adequate sample of FHA-insured loans. In addition, Regions did not fully adhere to HUD’s self-reporting requirements by failing to report “findings of fraud” or “other serious violations” or “serious material deficiencies” to HUD.
As a result of Regions negligence, hundreds of FHA loans approved by the bank were not eligible for FHA mortgage insurance under the DEL program and that HUD would not otherwise have insured. HUD subsequently incurred substantial losses when it paid insurance claims on those loans.
“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.”
“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.”
“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.”
“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.”