Allegations that the Federal Housing Administration was defrauded on mortgages it insured have been settled for $1 billion. The settlement, which is the biggest of its kind, also resolves allegations of inflated appraisals and abuse with the government’s loan modification program.
The settlement with the Department of Housing and Urban Development is “the largest ever False Claims Act settlement relating to mortgage fraud,” the U.S. Attorney for the Eastern District of New York said Thursday in a statement.
According to the announcement, the settlement resolves civil claims by the government that Countrywide Financial Corp. defrauded FHA “by recklessly and fraudulently underwriting loans to unqualified borrowers.” Countywide is also accused of inflating appraisal values.
Bank of America Corp., which agreed to the settlement, acquired Countrywide in July 2008.
The government launched an investigation into Countrywide in 2009 to determine whether the formerly biggest lender knowingly made FHA-insured loans to unqualified borrowers.
HUD claims that FHAÂ losses related to Countrywide’s fraud has reached hundreds of millions of dollars.
The news release indicated that the settlement also resolves claims tied to the Home Affordable Modification Program.
The Justice Department noted that the settlement with BofA is part of the global settlements announced today between state attorneys general and the five largest mortgage servicers.
BofA will make an immediate cash payment of $500 million, while a second $500 million payment will be deferred to fund a loan modification program for Countrywide borrowers with negative equity.
BofA will reach out to impacted borrowers and provide modifications to eligible borrowers who request it. If $500 million in loan modifications haven’t been completed within three years, then BofA will make a payment to the U.S. government for the difference.
