Lender Financial Freedom pays $89 million to settle whistleblower case asserting Federal Housing Authority Fraud

Financial Freedom has agreed to a settlement with the United States of more than $89 million to resolve allegations that it violated the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) in connection with its participation in a federally insured Home Equity Conversion Mortgages (HECM) or ‘reverse mortgage’ program, the Justice Department announced today. Financial Freedom is headquartered in Austin, Texas.

 

Through ‘reverse mortgage’ loans, older people are able to access the equity in their homes by borrowing money against the equity they have built in their home. To encourage reverse mortgage loans, the FHA protects lenders from loss by providing mortgage insurance. Under FHA’s program, a loan becomes due and payable when the home is sold or vacant for more than 12 months or upon the death of the homeowner, whichever comes first. The lender is repaid the amount of the loan, including the costs of servicing the loan and any interest that accrues on lender expenses after a loan becomes due and payable. FHA will reimburse a lender that is unable to recoup the full amount of the loan. In order to claim recoupment, the servicer is required to meet a number of regulatory requirements and deadlines.

The United States alleged that Financial Freedom sought to obtain insurance payments for interest from FHA despite failing to properly disclose on the insurance claim forms it filed with the agency that the mortgagee was not eligible for such interest payments because it had failed to meet various deadlines relating to appraisal of the property, submission of claims to HUD, and pursuit of foreclosure proceedings. As a result, from March 31, 2011 to August 31, 2016, the mortgagees on the relevant reverse mortgage loans serviced by Financial Freedom allegedly obtained additional interest that they were not entitled to receive.

The United States’ investigation arose from a declaration filed pursuant to FIRREA by Sandra Jolley, a consultant for the estates of borrowers who took out HECM loans. Under FIRREA, whistleblowers may file declarations concerning alleged violations of the statute and may obtain a share of the recovery. Ms. Jolley will receive $1.6 million from the settlement. The Whistleblower Mrs. Jolley was represented by The Employment Law Group.

 

Jeffrey Newman represents whistleblowers nation wide.