ATTORNEY'S OFFICE OF CALIFORNIA: Sierra Pacific Mortgage Agrees to Pay $3.67 Million to Resolve False Claims Act Allegations Related to the FHA Loan Program

By Press release submission | Feb 18, 2019

U.S. Attorney's Office for the Eastern District of California issued the following announcement on Feb. 13.

U.S. Attorney McGregor W. Scott announced that Sierra Pacific Mortgage Company Inc. (SPM), a national mortgage lender headquartered in Folsom, has agreed to pay the United States $3,670,000 to resolve allegations that it violated the False Claims Act by falsely certifying compliance with Federal Housing Administration (FHA) mortgage insurance requirements in connection with certain loans.

During the time period covered by the settlement, SPM participated as a direct endorsement lender (DEL) in the U.S. Department of Housing and Urban Development’s FHA insurance program. A DEL has the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD for the resulting losses. DELs are required to follow program rules designed to ensure they are properly underwriting and certifying mortgages for FHA insurance and to maintain a quality control program that can prevent and correct deficiencies in their underwriting practices.

The United States alleged that between April 2007 and June 2009, SPM knowingly submitted loans for FHA insurance that did not qualify. The United States further alleged that SPM failed to properly respond to internal warning signs that its loans were poorly underwritten and failed to properly implement a quality control program once it was aware of those warning signs.

The False Claims Act allows the government to recover damages and penalties for the presentation of false claims for payment to the United States. By improperly approving loans that did not qualify for FHA insurance, SPM caused the United States to pay insurance claims on those loans when they defaulted.

“When mortgage companies fail to follow lending standards, it harms both taxpayers and borrowers,” said U.S. Attorney Scott. “We will continue to work with HUD/FHA and our law our law enforcement partners to ensure the integrity of the FHA insurance program.”

“The wrongful actions of SPM were not minor mistakes or foot faults. There is no room at FHA for lenders who knowingly violate the trust placed in them as direct endorsement lenders,” HUD General Counsel Paul Compton said.

Original source can be found here.

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