Forgery allegations leveled at mortgage lender by DoJ

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Nutter Home Loans is facing allegations from the Department of Justice regarding improprieties in Federal Housing Administration-insured mortgage originations.

The complaint filed under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the False Claims Act centers on Home Equity Conversion Mortgages, like charges Nutter Home Loans settled with the Department of Housing and Urban Development in 2014.

The more recent complaint alleges that the company used forged certifications and hired "unqualified" underwriters to help originate HECMs, a type of Federal Housing Administration-insured loan that allows borrowers age 62 and up to withdraw a portion of their home equity to use as cash, or for other purposes.

"This complaint sends a clear message that we will not tolerate fraud against programs designed to financially help our nation’s seniors," acting U.S Attorney Michael R. Sherwin for the District of Columbia said in a press release from the DoJ about the case.

Nutter Home Loans and its outside counsel "strongly dispute both the factual accuracy and legal merits of the allegations," according to Edward T. Kang, a partner in the Washington office of Alston & Bird LLP, who is defending the company against the complaint.

The allegations against the company, which was formerly known as James B. Nutter & Co., reflect a dispute over "alleged technical violations and process errors" that occurred between 2008 and 2010 when "HUD's guidelines were far from clear and consistent," Kang said in an email.

"The company complied with HUD's then-applicable guidelines as they reasonably understood them. The Justice Department’s belated allegations in this case are an attempt to rewrite the guidelines 10 years after the fact," he added.

On that basis, Kang called allegations that the company submitted false claims on the FHA insured loans to HUD for reimbursement "unsubstantiated."

Several False Claims Act enforcement actions followed the housing boom-and-bust cycle that led to the Great Recession and the trend reduced some lenders' interest in the FHA market.

HUD officials have continued to charge mortgage companies with False Claims Act violations from time to time, but they also are in the midst of clarifying compliance guidelines with the aim of reducing such actions and encouraging FHA market participation.

The Department of Housing and Urban Development and its inspector general had a hand in investigating the DoJ complaint.

"Lenders who willfully disregard FHA requirements for HECM loans expose the program to significant financial losses that threaten the future availability of this important program to seniors," said Rae Oliver Davis, inspector general at the Department of Housing and Urban Development. "This complaint is evidence that we will tirelessly investigate allegations of abuses of the HECM program by FHA lenders."

It's not clear whether the more recent complaint is related to the allegations settled in 2014 or not. The previous allegations were related to a failure to perform due diligence in underwriting that resulted in circumstances where the same borrower took out more than one HECM.

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Enforcement actions DoJ HUD False Claims Act FHA Reverse mortgages Originations Underwriting