Reverse mortgage lender settles False Claims Act charges for $2.5M

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Finance of America Reverse agreed to pay $2.5 million to settle allegations that a company it acquired violated the False Claims Act for loans submitted for Federal Housing Administration insurance in 2010.

The settlement resolves accusations that prior to May 1, 2010, Urban Financial ordered appraisals for reverse mortgages through a form that provided appraisers with the loan amount and otherwise improperly communicated certain information to them in an attempt to influence their property valuation opinion. The FHA insured the loans through the Home Equity Mortgage Conversion program.

Finance of America Reverse acquired Urban Financial in November 2013, the Department of Justice press release pointed out. It agreed to pay $1.97 million to resolve the False Act Claims claims and an additional $500,000 to the Department of Housing and Urban Development to resolve its administrative liability.

"As the government has stated, this matter relates to origination practices occurring several years prior to Finance of America's acquisition of Urban Financial (now known as Finance of America Reverse). We are pleased to have brought this matter to a resolution and look forward to continuing to provide mortgage financing to the American public," Kristen Sieffert, president of Finance of America Reverse, said in an emailed statement.

This is the first False Claims Act settlement involving FHA that the DOJ reached this year, based on a search of the agency's website.

"The department is committed to working with HUD to protect vital lending programs such as the FHA's HECM program," said Assistant Attorney General Jody Hunt of the DOJ's Civil Division in the press release. "We will hold accountable those FHA lenders that knowingly and materially fail to abide by their promises to HUD."

During the Obama administration, DOJ and HUD expanded use of the False Claims Act to go after mortgage lenders for submitting loans during the financial crisis that the FHA ended up having to pay insurance claims on.

This aggressive enforcement pushed many banks out of the FHA program. Even nonbank lender Quicken Loans fought back, resulting in a mediated settlement last June for $32.5 million, far less than the government originally sought.

As a result, HUD and DOJ issued a memorandum of understanding that changed enforcement parameters last October. But even before then, fewer actions were taken regarding the False Claims Act.

These settlements no longer merit a section in the broader annual press release announcing DOJ's False Claims enforcement success in the prior fiscal year. For fiscal year 2019, besides the Quicken deal, the only other settlement involving FHA also happened in June 2019, where the accused agreed to pay $1.1 million related to a loan for the development of a hospital in Lakeway, Texas.

False Claims Act FHA-related settlements totaled $32.6 million in fiscal year 2019, which ended on Sept. 30. That dropped from $149.5 million in fiscal year 2018 and well below the fiscal year 2014 high of $3.1 billion.

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Enforcement Reverse mortgages DoJ HUD FHA Appraisals Underwriting