Whistleblower Law Blog
Topic: Mortgage Fraud
On February 25, 2015, MetLife Home Loans LLC agreed to pay the U.S. Government $123.5 million to settle claims alleging that the company originated and underwrote loans insured by the Federal Housing Administration (FHA) to unqualified borrowers.
John Walsh, the U.S. Attorney for the District of Colorado, brought a False Claims Act action against Met Life Bank N.A., which merged into MetLife Home Loans LLC in June 2013. MetLife Home Loans is a wholly owned subsidiary of MetLife Inc., as was MetLife Bank before the merger.
The U.S. Government alleged that from September 2008 through March 2012, MetLife Bank knowingly submitted for FHA insurance numerous mortgage loans that did not meet Department of Housing and Urban Development (HUD) underwriting requirements. When FHA-insured loans default, the financial institution that originated the loans can submit insurance claims to the U.S. government. Therefore, when FHA-insured loans originated by MetLife Bank defaulted, U.S. taxpayers got stuck with the bill.
During the relevant period, MetLife Bank was as an FHA-approved Direct Endorsement Lender. Such lenders are authorized to originate, underwrite, and certify mortgages for FHA insurance. The FHA relies on Direct Endorsement Lenders to ensure that only loans that comply with HUD regulations are submitted for FHA insurance.
MetLife Bank’s internal findings showed that senior executives, including the CEO and the bank’s directors, had information showing that a substantial percentage of the loans were not eligible for FHA insurance. MetLife Bank’s records show that, between January 2009 and August 2010, between 25 percent and 60 percent of MetLife Bank’s FHA-insured loans had compliance deficiencies labeled “material/significant.” Despite these deficiencies, MetLife Bank moved many loans out of this category to the more favorable category of “moderate.” As one employee put it in an e-mail, “Why say significant when it feels so good to say moderate.”
Between January 2009 and December 2011, MetLife Bank self-reported only 321 FHA insured mortgages to HUD as materially violating HUD regulations, despite having internally identified 1,097 loans that it should have reported.
Although the government brought the FCA charges against MetLife Bank on its own, the False Claims Act allows private citizens (called “relators”) to file suits on behalf of the government for similar violations, such claims are known as a qui tam claims. On March 19, 2014, Keith Edwards, a former executive at JP Morgan, received a $69.3 million reward for blowing the whistle and disclosing allegations that JP Morgan violated the FCA by submitting toxic mortgages to the government for insurance.
In 2014, the U.S. government recovered nearly $6 billion through the False Claims Act.
Last Wednesday, U.S. District Judge Victor Marrero approved a settlement in which Citigroup Inc., the nation’s third-largest bank, agreed to pay $158.3 million to settle claims that it defrauded the federal government by misleading the government into insuring high-risk home mortgages.
The settlement resolves a lawsuit against Citigroup brought by a whistleblower under the federal False Claims Act. The whistleblower, Ms. Sherry Hunt, a quality control manager at Citibank, is entitled to collect $31 million of the settlement amount for her role in exposing the fraudulent conduct.
According to the lawsuit, Citigroup falsely certified that many of its mortgage loans qualified for insurance under the FHA program of the Department of Housing and Urban Development (HUD). Among Hunt’s allegations was the claim that Citibank employees erased the records of approximately 1,000 loans that a Citibank quality-control team had designated as potentially fraudulent. In violation of HUD requirements, these defects that the quality control identified were not included in reports to the government.
According to government investigators, 30% of the HUD-insured mortgaged made or underwritten by Citibank since 2004 have gone into default, resulting in a nearly $200 million loss to the government. In its complaint against Citibank, the government noted that “a substantial percentage of those claims resulted from loans that were ineligible for FHA insurance and never should have been insured.”
As part of the settlement agreement, CitiMortgage, a subsidiary of Citibank “admits, acknowledges and accepts responsibility” for having misled the government into insuring high-risk home mortgages.
Since the False Claims Act was amended in 1986, more than $34 billion of fraud against the government has been recovered. According to the U.S. Attorney’s office in the Southern District of New York, the $158.3 million settlement is the second-largest amount ever paid in a mortgage fraud case.
The whistleblower, Ms. Hunt, is still employed by Citigroup and is now a vice president of quality assurance. Commenting on her role as a whistleblower, Ms. Hunt said:
“I had to do something to stop them . . . I felt that if I were brave enough to come forward and take a stand, then maybe others would, too.”
The Employment Law Group® law firm focuses on the area of whistleblower protection law, and has helped many clients come forward to file suit against employers that fraudulently billed the U.S. government and has helped whistleblowers protect their careers.