Franklin American Mortgage Company has agreed to pay the United States $70 million to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) and the Federal Housing Administration (FHA).
Franklin American is headquartered in Franklin, Tennessee, but the Colorado U.S. Attorney provided information to this examiner.
“Franklin promised that its loans met HUD’s quality standards in order to obtain HUD insurance, but ignored widespread, systemic defects in those loans,” said U.S. Attorney John F. Walsh of the District of Colorado. “This case is the latest step in our ongoing effort to hold lenders accountable for fraudulent conduct that wreaked havoc on our housing market.”
“This settlement is another step forward in the government’s efforts to hold lenders accountable for the harm caused by years of improper and inadequate underwriting of mortgages insured by the federal government,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “As this settlement makes clear, we will hold accountable anyone whose conduct results in loss to the government, whether it is a large bank or a smaller mortgage lender.”
During the time period covered by the settlement, Franklin American participated as a direct endorsement lender which can originate, underwrite and endorse mortgages.
“Franklin American Mortgage has reached a settlement with the Department of Justice and Housing and Urban Development’s ongoing inquiries of mortgage lenders participating in the Federal Housing Administration program,” Joe Taylor, Senior Vice President, Corporate Counsel for Franklin said in an exclusive for this article.
“These inquiries have been customary within our industry. 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 settlement announced today resolves allegations that Franklin American failed to: comply with underwriting and quality control requirements, according to the U.S. Attorney’s office. As part of the settlement, Franklin American admitted to the following: From 2006 to 2012, it certified loans that did not meet HUD underwriting requirements; employed unqualified junior underwriters; and set high quotas for its underwriters and subjected underwriters to discipline if they did not meet their quotas; and incurred audits that did not satisfy HUD’s requirements. The spokesperson for the Colorado U.S. Attorney informed this reporter that Franklin American’s conduct caused the FHA to insure hundreds of loans that were not eligible and, as a result, the FHA suffered substantial losses.