Franklin American Mortgage Settles With DOJ Over Alleged FHA Loan Defects
This is a mortgageorb.com article.
Franklin, Tenn.-based Franklin American Mortgage Co. will pay $70 million to settle allegations brought by the U.S. Department of Justice (DOJ) that the lender knowingly misled the government about the quality of the mortgages it submitted for Federal Housing Administration (FHA) insurance.
Authorities allege that the lender’s shoddy underwriting of hundreds of FHA-backed loans from 2006 to 2012 led to “substantial losses” for the FHA when borrowers defaulted, according to a DOJ press release.
Franklin American has not admitted to any wrongdoing and will continue to participate in the FHA program.
According to federal authorities, Franklin American offered bonuses to underwriters for generating more loans, employed unqualified junior underwriters to perform key functions and disciplined underwriters if they failed to meet quotas, Reuters reports.
Authorities also allege that company officials knew of the loan defects before the loans were presented to the FHA for backing, as they had already been uncovered via internal audits.
In a statement, Joe Taylor, senior vice president and corporate counsel for Franklin American, says “We chose to settle this matter without admission of fault and negotiated this monetary settlement amount to avoid a protracted and costly legal process. Franklin American Mortgage will continue our high standards as a responsible lender and FHA program participant. We are pleased to have resolved this matter which will not negatively impact Franklin American Mortgage’s ability to continue serving its customers and partners.”
The news comes just as non-bank mortgage lender Quicken Loans – which is facing a similar lawsuit from the DOJ and FHA, that was filed in April – is considering getting out of FHA loans altogether due to stricter underwriting guidelines, increased regulatory scrutiny and increased risk of mortgage buybacks.
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