The financial crisis of 2007 and 2008 occurred almost a decade ago. The fall out, however, continues. Many people lost their homes. Americans were asked to pony up hundreds of billions of dollars to bail out the banks. In the following years, whistleblowers and prosecutors worked hard to go after the banks that caused the mess. Most of the cases settled long ago but there are still a few stragglers. This week the Justice Department announced a $48 million settlement with United Shore Financial Services (USFS). The government claims the Michigan based lender wrote bad loans that were insured by taxpayers.
USFS is a direct endorsement lender. That means it can write loans that are guaranteed by the government. Today, most home loans are sold immediately after closing. Investors won’t buy those loans unless guaranteed. The FHA, VA, Fannie Mae, Freddie Mac and a few private insurers offer these guarantees. Because Fannie and Freddie are under a government conservatorship, most loans are today backed by taxpayers.
Lenders can issue loan guaranties on behalf of the FHA but only if they adhere to certain stringent quality control standards.
Approved lenders must certify each loan guaranteed by the government meets certain standards. The certification says:
“I certify that, upon the submission of this application, and with its submission of each loan for insurance or request for insurance benefits, USFS has and will comply with the requirements of the Secretary of Housing and Urban Development… HUD regulations, FHA handbooks…”
An underwriter must also personally certify:
“I, the undersigned, as authorized representative of USFS at this time of this closing of this mortgage loan, certify that I have personally reviewed the mortgage documents..”
According to a statement of facts released by the Justice Department, some of USFS’ mortgages relied on unverified or improperly calculated borrower income. Other loans excluded borrower’s liabilities or overstated borrower’s assets. And others didn’t have a proper appraisal.
Another big violation of HUD guidelines centers on loan officer compensation. Congress doesn’t want underwriters to be paid based on the number of loans they approve. That gives underwriters an incentive to approve mortgage applications that clearly don’t qualify. Prosecutors say that USFS “pressured underwriters to approve FHA mortgages and its compensation plan used a formula expressly tying underwriter compensation to the percentage of loans approved by the underwriter.”
Finally, despite a requirement that each loan be personally reviewed, USFS did not do that. Instead, they a computer program signed the underwriting certifications even if the loan application wasn’t properly reviewed.
Justice Department Announces $48 Million Settlement with United Shore Financial Services
The case against United Shore was prosecuted by the Department of Justice and the Inspector General of HUD. The Office of the Inspector General is the law enforcement arm of HUD. Prosecutors in Washington DC, Madison, Wisconsin and Detroit participated in the case.
In announcing the settlement, a Justice Department spokesperson said, “The settlement announced today holds United Shore accountable for its endorsement of ineligible loans for FHA mortgage insurance. Over the past several years, the Civil Division, in collaboration with numerous U.S. Attorneys’ Offices, HUD and its Office of Inspector General, has diligently worked to hold FHA-approved lenders accountable for actions that deprived homeowners of their homes, wasted taxpayer funds, and contributed to the financial crisis. The settlement announced today is yet another success in this continuing effort.”
Madison, Wisconsin’s U.S. Attorney, John W. Vaudreuil, said “While USFS deserves credit for acknowledging and resolving its conduct, that conduct not only resulted in substantial losses of public funds, but also put Wisconsin homeowners at risk of losing their homes or ruining their credit. This large settlement should send a clear message that such conduct will not be tolerated.”
USFS Prosecution Brought Pursuant the False Claims Act
The case against USFS was prosecuted under the federal False Claims Act. Passed in 1863, the Act allows private individuals with inside knowledge of schemes involving federal funds or programs to file lawsuits in the name of the U.S. government. Because USFS issued mortgages guaranteed by the FHA, the case qualifies for prosecution under the False Claims Act.
The Act is unique because it authorizes whistleblowers who file claims to receive a cash award of between 15% and 30% of whatever the government collects from the wrongdoers. In this case, that could mean an award of between $7.2 and $14.4 million!
To be eligible for an award, the whistleblower must be the original source of the information. There is also a requirement that the whistleblower be the first to report that information.(If you think you qualify for an award, don’t delay!)
MahanyLaw – False Claims Act Whistleblower Lawyers
The whistleblower lawyers at MahanyLaw have helped their financial services clients collect over $100,000,000.00 in awards. On November 29th, a Houston jury awarded the government $92 million in one of our whistleblower cases.That verdict is scheduled to be tripled in early 2017. That could result in tens of millions of dollars in additional awards.
If you have information about fraud or misconduct by a bank, mortgage company, mortgage servicer or other financial firm, call us. All inquiries are protected by the attorney – client privilege and kept confidential. And there is never a fee or costs for our services unless we collect an award for you. Want more information before you call? Visit our Financial Services Fraud page or our whistleblower FAQ page first.
For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct).