Financial Fraud: United Shore Financial Services LLC (USFS) Pay For Alleged False Claims Act Liability Arising From Fha-Insured Mortgage Lending

Financial Fraud
United Shore Financial Services LLC (USFS) Pay For Alleged False Claims Act Liability Arising From Fha-Insured Mortgage Lending

United Shore Services LLC Agrees To Pay $48 Million To Resolve Alleged False Claims Act Liability Arising From Fha-Insured Lending

WASHINGTON – United Shore Financial Services LLC (USFS) has agreed to pay the United States $48 million to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements, the Department announced today.  USFS is headquartered in Troy, Michigan.

“The settlement announced today holds United Shore accountable for its endorsement of ineligible loans for FHA mortgage ,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “Over the past several years, the Civil Division, in collaboration with numerous U.S. Attorneys’ Offices, HUD and its Office of Inspector General, has diligently worked to hold FHA-approved lenders accountable for actions that deprived homeowners of their homes, wasted taxpayer funds, and contributed to the financial crisis.  The settlement announced today is yet another success in this continuing effort.”

“The federal government insures loans on the condition that lenders comply with certain rules to safeguard federal funds,” said U.S. Attorney Barbara L. McQuade for the Eastern District of Michigan.  “When lenders breach their duty of due diligence and make risky loans that go bad, taxpayers pay the bill.  By holding accountable lenders who fail to comply with underwriting requirements, we hope to send a message to all lenders that they must comply with government for federally insured loans.”

“USFS acknowledged that it failed to comply with FHA underwriting and quality control (QC) requirements, resulting in improperly originated mortgages,” said U.S. Attorney John W. Vaudreuil for the Western District of Wisconsin.  “While USFS deserves credit for acknowledging and resolving its conduct, that conduct not only resulted in substantial losses of public funds, but also put Wisconsin homeowners at risk of losing their homes or ruining their credit.  This large settlement should send a clear message that such conduct will not be tolerated.”

During the time period covered by the settlement, USFS participated as a direct endorsement lender (DEL) in the FHA insurance program.  A DEL has the authority to originate, underwrite and endorse mortgages for FHA insurance.  If a DEL approves a mortgage for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan.  Under the DEL program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance.  DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance, to maintain a QC program that can prevent and correct deficiencies in their underwriting practices, and to self-report any deficient loans identified by their QC program.

The settlement announced today resolves allegations that between Jan. 1, 2006, and Dec. 31, 2011, USFS failed to comply with certain FHA origination, underwriting and QC requirements.  As part of the settlement, USFS admitted to the following facts:  USFS improperly pressured underwriters to approve FHA mortgages and its compensation plan used a formula expressly tying underwriter compensation to the percentage of loans approved by the underwriter and closed by USFS.  USFS also falsely certified that direct endorsement underwriters personally reviewed appraisal reports prior to USFS approving and endorsing mortgages for FHA insurance.

Additionally, although USFS’ internal QC reviews showed severe problems with FHA insured mortgages, USFS routinely failed to provide any meaningful information to senior management regarding its QC findings.

USFS also failed to adhere to HUD’s self-reporting requirements.  While USFS’s QC reviews identified hundreds of materially-deficient FHA insured loans during the time period at issue, USFS self-reported only three loans to HUD.

As a result of USFS’ conduct and omissions, HUD insured hundreds of loans approved by USFS that were not eligible for FHA mortgage insurance under the Direct Endorsement program, and that HUD would not otherwise have insured.  HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

Further, on Jan. 10, 2014, after the United States initiated an investigation into USFS, USFS made certain discretionary distributions to a shareholder in the company.

* * *

“The settlement announced today strongly demonstrates HUD OIG’s continued efforts to identify and investigate underwriting deficiencies in the origination and underwriting of single-family residential loans insured by FHA,” said HUD Inspector General David A. Montoya.

“This settlement, once again, demonstrates HUD’s unyielding efforts to root out poor underwriting practices in its mortgage insurance programs,” said Acting HUD General Counsel Tonya Robinson.  “We want to thank the Department of Justice for partnering with us in holding lenders accountable for their actions. It is critically important that lenders comply with HUD’s underwriting standards and originate mortgages that are in accordance with FHA requirements and that borrowers can sustain.”

The settlement was the result of a joint investigation conducted by HUD, HUD’s Office of Inspector General, the Civil Division’s Commercial Litigation Branch and the U.S. Attorneys’ Offices for the Eastern District of Michigan and the Western District of Wisconsin.

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