United Shore FInancial to pay $48 million for approving ineligible loans for FHA mortgage insurance

United Shore Financial Services LLC (USFS) has agreed to pay the United States $48 million to  end allegations that it 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) that did not meet applicable requirements, the Justice Department announced today.  It is headquartered in Troy, Michigan.

“The federal government insures loans on the condition that lenders comply with certain rules to safeguard federal funds,” said U.S. Attorney Barbara L. McQuade for the Eastern District of Michigan.  “When lenders breach their duty of due diligence and make risky loans that go bad, taxpayers pay the bill.  By holding accountable lenders who fail to comply with underwriting requirements, we hope to send a message to all lenders that they must comply with government standards for federally insured loans.”

“USFS acknowledged that it failed to comply with FHA underwriting and quality control (QC) requirements, resulting in improperly originated mortgages,” said U.S. Attorney John W. Vaudreuil for the Western District of Wisconsin.  “While USFS deserves credit for acknowledging and resolving its conduct, that conduct not only resulted in substantial losses of public funds, but also put Wisconsin homeowners at risk of losing their homes or ruining their credit.  This large settlement should send a clear message that such conduct will not be tolerated.”

During the time period covered by the settlement, USFS 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 for compliance with FHA requirements before it is endorsed for FHA insurance.  DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance, to maintain a QC program that can prevent and correct deficiencies in their underwriting practices, and to self-report any deficient loans identified by their QC program.

 

USFS also failed to adhere to HUD’s self-reporting requirements.  While USFS’s QC reviews identified hundreds of materially-deficient FHA insured loans during the time period at issue, USFS self-reported only three loans to HUD.  As a result of USFS’ conduct and omissions, HUD insured hundreds of loans approved by USFS that were not eligible for FHA mortgage insurance under the Direct Endorsement program, and that HUD would not otherwise have insured.  HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

Jeffrey Newman represents whistleblowers