PHH Agrees To Pay $74 Million To Resolve Alleged False Claims Act Liability Arising From Mortgage Lending
NEWARK, N.J. – PHH Corp., PHH Mortgage Corp. and PHH Home Loans (PHH) have agreed to pay the United States $74,453,802 to resolve allegations that they violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA), guaranteed by the United States Department of Veteran Affairs (VA), and purchased by the Federal Housing Finance Agency (FHFA) that did not meet applicable requirements, the Justice Department announced today. PHH Corp. and PHH Mortgage Corp. are headquartered in Mount Laurel, New Jersey, while PHH Home Loans is headquartered in Edina, Minnesota. PHH has agreed to pay $65 million to resolve the FHA allegations and $9.45 million to resolve the VA and FHFA allegations.
“This settlement requires PHH to pay back to the taxpayers of the United States millions of dollars in loans that never should have been made,” Acting U.S. Attorney William E. Fitzpatrick for the District of New Jersey said. “By failing to ensure the creditworthiness of borrowers and otherwise failing to make sure the loans met HUD underwriting requirements, loans were insured by FHA that should not have been.”
“Government mortgage programs designed to assist homeowners — including programs offered by the FHA, VA, Fannie Mae and Freddie Mac — depend on lenders to approve only eligible loans,” said Acting Assistant Attorney General Chad A. Readler, head of the Justice Department’s Civil Division. “The Department has and will continue to hold accountable lenders that knowingly cause the government to guarantee, insure, or purchase loans that are materially deficient and put both the homeowner and the taxpayers at risk.”
The settlements announced today resolve allegations that PHH failed to comply with certain FHA, VA, and FHFA origination, underwriting, and quality control requirements.
Since January 2006, PHH has participated as a Direct Endorsement Lender (DEL) in the FHA insurance program. A DEL has the authority to originate, underwrite, and endorse mortgages for FHA insurance. 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 DEL program, the FHA does not review a loan before it is endorsed for FHA insurance for compliance with FHA’s credit and eligibility standards, but instead relies on the efforts of the DEL to verify compliance. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance.
As part of the settlement, PHH admitted the following facts concerning the FHA loans:
Between Jan. 1, 2006, and Dec. 31, 2011, it certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements and did not adhere to FHA’s self-reporting requirements. Examples of loan defects that PHH admitted resulted in loans being ineligible for FHA mortgage insurance included:
Failing to document the borrowers’ creditworthiness, including paystubs, verification of employment, proper credit reports, and verification of the borrowers’ earnest money deposit and funds to close.
Failing to document the borrower’s claimed net equity in a prior residence or documentation showing that the borrower had paid off significant debts. Including these debts in the borrower’s liabilities resulted in the borrower exceeding HUD’s debt-to-income ratio requirements for FHA-insured loans.
Insuring a loan for FHA mortgage insurance even though the borrower did not meet HUD’s minimum statutory investment for the loan.
In 2007, PHH audited a targeted sample of government loans for closing or pre-insuring requirements and found that its “percent accurate” did not exceed 50 percent during 2007. Since 2006, HUD has required self-reporting of material violations of FHA requirements. However, between Jan.1, 2006, and Dec. 31, 2011, PHH Home Loans did not self-report any loans to HUD until 2013, after the United States commenced its investigation resulting in this Settlement Agreement.
As a result of PHH’s conduct and omissions, PHH admitted, HUD insured loans endorsed by PHH that were not eligible for FHA mortgage insurance under the DEL program, and that HUD would not otherwise have insured. It admitted that HUD subsequently incurred substantial losses when it paid insurance claims on those loans.
In addition, from at least 2005 to2012, PHH was a VA approved lender, originating and underwriting mortgage loans and obtaining VA loan guarantees. Also from at least 2009 to 2013, PHH sold mortgage loans to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac). The FHFA provides oversight to Fannie Mae and Freddie Mac. The settlement resolves the United States’ contentions that PHH originated and underwrote VA loans that were ineligible for the loan guarantee program, and sold loans to the Freddie Mac and Fannie Mae that did not meet their requirements.
“This case demonstrates HUD’s resolve in protecting the integrity of its mortgage insurance programs for the benefit of all Americans, and in particular, first time homebuyers,” said Dane Narode, HUD’s Associate General Counsel for Program Enforcement. “We are gratified that PHH has accepted responsibility for its actions.”
“This settlement resolves allegations of reckless origination and underwriting of VA guaranteed mortgage loans,” said Michael J. Missal, Inspector General, for the Office of Inspector General for the Department of Veteran Affairs (VA OIG). “It sends a clear message that the VA OIG will aggressively protect the integrity of this crucial program which helps so many of our veterans buy, build, or repair their homes. I would also like to thank the U.S. Attorney’s Offices for partnering with us to achieve this significant result.”
An investigation into the allegations resolved by these settlements was commenced jointly by the U.S. Attorney’s Offices for the Districts of New Jersey, Minnesota and the Southern District of Florida, in conjunction with the Department of Justice’s Civil Division. After the investigation was commenced, a whistleblower lawsuit was filed under the False Claims Act by a former employee of PHH, raising similar as well as additional allegations of fraud. Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery.
The settlements were the result of joint investigations conducted by HUD, the HUD Office of Inspector General, the Veterans Administration’s Office of Inspector General, the FHFA Office of Inspector General, the Department of Justice’s Civil Division, and the U.S. Attorney’s Offices for the District of Minnesota, District of New Jersey, Southern District of Florida, and Eastern District of New York. Assistant United States Attorneys Anthony LaBruna and Mark Orlowski represented the District of New Jersey in this investigation and settlement: Ann Bildtsen represented the District of Minnesota, and James Weinkle represented the Southern District of Florida. The claims asserted against PHH are allegations only, and there has been no determination of liability.