Consumer Fraud

Whistleblower Helps U.S. Recover $13.2 Million With Mortgage Fraud Case

whistleblower housing mortgage 362x210 Whistleblower Helps U.S. Recover $13.2 Million With Mortgage Fraud CaseA whistleblower has helped the U.S. government recover $13.2 million from Universal American Mortgage, a subsidiary of Lennar Homes that does business as Eagle Home Mortgage, in a settlement resolving allegations of mortgage fraud.

The settlement with Eagle Home is the latest in a long series of mortgage fraud cases that the U.S. has litigated since the subprime mortgage crisis that helped plunge the U.S. into a deep recession. As with the other cases, many of which were initiated by a whistleblower action, the Eagle Home settlement resolves allegations that it falsely certified the mortgages it underwrote complied with Federal Housing Authority (FHA) standards.

Eagle Home serves as a direct endorsement lender under the FHA’s insurance program. Direct endorsement lenders have the authority to originate and underwrite mortgages covered by federal insurance without review or approval by the FHA. Essentially, direct endorsement lenders are trusted by the government to follow federal rules and standards for FHA insurance. When they fail to do so, U.S. taxpayers pay the price.

The U.S. Department of Justice investigated the allegations in the whistleblower lawsuit and chose to intervene in the case. Federal prosecutors found that between Jan. 1, 2006, and Dec. 31, 2011, Eagle Home routinely submitted loans for FHA insurance that did not qualify.

Federal prosecutors also claimed that Eagle Home “improperly incentivized underwriters and knowingly failed to perform quality control reviews.” These practices violated rules spelled out by the U.S. Department of Housing and Urban Development and contributed to Eagle Home’s submission of “defective” high-risk loans.

“In a quest for profits, mortgage companies have ignored important lending standards,” said U.S. Attorney Annette L. Hayes for the Western District of Washington. “Not only does this harm the borrowers leaving them over their heads in debt and underwater on their mortgages, it harms taxpayers because the mortgages are backed by government insurance. This settlement should serve as a warning to other lenders to diligently follow the rules.”

Kat Nguyen-Seligman, a former Eagle Home Mortgage employee, filed the lawsuit on behalf of the U.S. under the whistleblower provisions of the False Claims Act. She will receive $1,980,000 of the total recovery (about 15 percent) as a whistleblower award.