Consumer Fraud

BB&T Pays $83 Million To Resolve Allegations of FCA Violations, Mortgage Fraud

whistleblower 5 370x210 BB&T Pays $83 Million To Resolve Allegations of FCA Violations, Mortgage FraudBB&T Bank has agreed to pay the U.S. $83 million to resolve allegations that it violated the False Claims Act (FCA) by originating and underwriting federally insured mortgage loans it knew did not meet applicable requirements.

Based in Winston-Salem, N.C., Branch Banking & Trust (BB&T) Company participated as a direct endorsement lender (DEL) in the U.S. Department of Housing and Urban Development’s Federal Housing Administration (FHA) insurance program since at least 2006.

As a DEL, BB&T had the authority to originate, underwrite, and endorse mortgages insured by FHA. The FHA does not review DEL loans for compliance with FHA requirements before endorsing them for insurance, so DELs are required to follow strict rules designed to ensure that the loans are properly underwritten and endorsed.

The DEL program requires lenders to maintain a quality-control program to prevent and correct problems in their underwriting practices and to self-report any deficient loans identified by their quality-control staff.

If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan.

Under the settlement agreement, BB&T admitted that it regularly certified mortgage loans for FHA insurance that did not meet the proper requirements. BB&T significantly increased its loan volume between 2006 and 2009 — more than doubling all loan originations, while increasing the number of FHA-insured loans 600 percent.

The increase in BB&T’s mortgage loan volume was accompanied by an increase in the number of loans internally rated “Serious-Marketability” by BB&T’s quality control department — the most significant quality control defect rating, and one that rendered a loan ineligible for FHA insurance. The lawsuit also notes that the number of employees working in BB&T’s quality control department never grew, even when the number of loans it reviewed soared.

Federal prosecutors said that the percentage of mortgage loans rated as Serious-Marketability always exceeded 30 percent. But in 2010 and 2011, the percentage of these loans rose to more than half. BB&T endorsed many of these bad loans regardless of their ineligibility for FHA insurance and then filed claims with HUD when the loans defaulted.

Internal documents show that BB&T executives were aware the bank was wrongfully approving loans for FHA insurance but did nothing to stop the practice until 2015.

“While profiting from the FHA program, BB&T exposed the taxpayers to losses by failing to comply with HUD guidelines, and then took the additional step of falsely certifying that it had complied with such guidelines,” said U.S. Attorney John Horn of the Northern District of Georgia, who helped prosecute the case. “This settlement recovers substantial losses caused by BB&T’s decision to place its own profits above its commitment to adhere to HUD underwriting and quality control requirements.”

Source: U.S. Department of Justice