Not All Fireworks Were on the 4th of July

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Just prior to July 4^th, the Department of Justice announced that it hit another lender with a False Claims Act violation and fine.

The most recent victim is Prospect Mortgage who was levied a fine of $4.16 million, and another one bites the dust…

According to DOJ, once again a lender gets fined for misrepresentations made in connection with FHA-insured mortgage loans that they originated.

DOJ says that two of Prospect’s branches, one in Florida and one in North Carolina, did not comply with FHA underwriting requirements.

As a result of Prospect’s misconduct, the US government suffered substantial losses from defaulted FHA loans originated by these Prospect branch offices. These losses were sustained on loans originated by Prospect and insured by FHA between 2007 and 2009.

Simply put, DOJ says that Prospect did not properly validate the consumer’s ability to repay the debt. Somewhat surprisingly, Prospect acknowledged it had failed to adhere to FHA’s underwriting and quality control guidelines.

“Prospect’s knowing failure to comply with material HUD loan origination requirements not only resulted in major losses to the public, but also served to undermine the FHA program,” U.S. Attorney for the Northern District of California Brian Stretch said. “Today’s settlement demonstrates the Department of Justice’s resolve and commitment to hold lenders, large and small, accountable for this type of fraudulent conduct.” Lenders take heed.

DOJ and FHA still mean business. Lenders making FHA loans today must ensure that they are following all FHA origination, underwriting, and quality control requirements to the letter.

There’s no room for deviation or shortcuts. The rules are the rules and lenders had better follow them…or else.

This is no joke. As lending now gets tougher and lenders fight for their piece of a shrinking pie, they must be very careful to not ease credit standards and their own lending policies. That puts them and their companies at additional risks for indemnification, repurchases, and fines, like the one levied against Prospect, as well as many other mortgage lenders.

Lending must be done right, for all the right reasons. Do not overlook or, even worse, ignore your pre and post-close QC reviews. These are critical to ensuring you are doing your loans in compliance with the three R’s: Rules, Regulations, and Requirements.

Quality and compliance in today’s loans are now more critical than ever.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.