Franklin American Mortgage Co. has joined a long list of home lenders that have agreed to settle allegations of originating government-insured loans that didn’t meet program requirements.
An investigation was jointly conducted on the lender by the Department of Housing and Urban Development, HUD’s Office of Inspector General and the U.S. Attorney for the District of Colorado.
The investigation reportedly found that the direct-endorsement lender knowingly originated residential loans insured by the Federal Housing Administration that didn’t meet the agency’s guidelines.
According to an announcement from the Department of Justice, the Franklin, Tennessee-based firm failed to comply with FHA origination, underwriting and quality-control requirements from January 2006 through March 2012.
Franklin American admitted that it certified loans for FHA insurance even though they didn’t meet HUD underwriting requirements, according to the government.
As the company’s loan production substantially increased between 2006 and 2010, it utilized
unqualified junior underwriters to perform important underwriting functions, the announcement said.
In addition, underwriters who didn’t meet company quotas were disciplined, while bonuses were offered to underwriters who
did.
“Loans underwritten by Franklin American were later reviewed in post-close audits,” the Justice Department said. “Oftentimes, those audits did not satisfy HUD’s requirements. Nevertheless, the audits identified substantial percentages of seriously deficient loans underwritten by Franklin American.
“Although these deficient loans were shared with management, Franklin American reported very few deficiencies to HUD.”
Franklin American’s practices allegedly violated the False Claims Act.
Hundreds of ineligible loans were insured by FHA, leading to substantial losses, the statement said.
The government said that Franklin American has agreed to settle the allegations for $70 million.
The settlement in one of many recently reached by FHA mortgagees — including Bank of America Corp., Fifth Third Bancorp, Golden First Mortgage Corp., GTL Investments Inc., HSBC, JPMorgan Chase & Co., MetLife Inc., SunTrust Mortgage Inc., U.S. Bancorp and Walter Investment Management Corp.
In addition, both Quicken Loans Inc. and Wells Fargo & Co. are currently battling the government in court over alleged violations of the False Claims Act.
After the publication of the story, Franklin American Mortgage Senior Vice President, Corporate Counsel Joe Taylor provided the following statement:
Franklin American Mortgage has reached a settlement with the Department of Justice and Housing and Urban Development’s ongoing inquiries of mortgage lenders participating in the Federal Housing Administration program. These inquiries have been customary within our industry. We chose to settle this matter without admission of fault and negotiated this monetary settlement amount to avoid a protracted and costly legal process. Franklin American Mortgage will continue our high standards as a responsible lender and FHA program participant. We are pleased to have resolved this matter which will not negatively impact Franklin American Mortgage’s ability to continue serving its customers and partners.
