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FHA Fraud Costs Canadian Bank Over $10 Million

RBC Mortgage winding down

November 26, 2008

By staff

The Royal Bank of Canada's U.S. mortgage unit has agreed to pay more than $10 million to settle charges of mortgage fraud on loans insured by the Federal Housing Administration. The unit is being shut down.

The U.S. Department of Justice announced yesterday the settlement with RBC Mortgage Co.

The mortgage unit, a subsidiary of Royal Bank of Canada, has agreed to pay $10.7 million within 14 days to compensate the government for losses on 219 loans closed between February 2001 and April 2004 that were based on fraudulent documentation. Each of the loans ended in foreclosure.

The settlement followed a criminal investigation that yielded federal charges against three RBC originators and 22 other defendants. All of the defendants were convicted.

The scheme involved fraudulent statements regarding the borrowers' credit, employment or source of equity.

RBC allegedly abused its direct endorsement authority and certified that 219 loans met FHA requirements based on bogus documentation. The deals involved false verifications of employment and fraudulent income verifications.

"After all of the loans resulted in foreclosures, RBC Mortgage allegedly submitted false mortgage insurance claims to HUD, which the agency paid," the statement said.

RBC Mortgage, formerly known as Prism Mortgage, had offices throughout the United States. But the company has not originated a loan since September 2005 and is in the process of winding down, according to the government's announcement.

RBC Mortgage acquired Bank One's U.S. wholesale first mortgage and broker home-equity origination businesses in 2003.

RBC also agreed to a separate $0.3 million settlement over false claims that a HUD audit was certified as current.

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