The Three Percent Solution

TheMReport — News and strategies for the evolving mortgage marketplace.

Issue link:

Contents of this Issue


Page 37 of 67

36 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ORIGINATION the latest Michigan lender to Pay $4.2M in Fraud settlement Mortgage coMpany originated 31 that did not Meet underwriting standards, costing the Fha $2.4 Million. Michigan // The heavy regula- tion of the mortgage industry has seen several of the nation's largest lenders reach multibillion- dollar settlements with the U.S. Department of Justice over toxic mortgage-backed securities. But it's not just the larger lenders that are under the mi- croscope. A recent multimillion- dollar settlement between a lender and the U.S. attorney for the Eastern District of Michigan showed that the smaller lenders cannot escape intense scrutiny from industry regulators. Southfield, Michigan-based lender GTL Investments, Inc., doing business as John Adams Mortgage Company, recently agreed to pay $4.2 million to settle claims regarding the origination of federally backed mortgage loans that were not properly underwritten, according to an announcement from U.S. Attorney for the Eastern District of Michigan Barbara McQuade. GTL Investments entered into the agreement with McQuade's office to settle allegations that mortgage loans originated by the lender and backed by the Federal Housing Administration (FHA) had material underwriting defi- ciencies. Underwriting standards are the criteria that borrowers must meet to purchase an FHA- insured residential mortgage loan with a modest down payment. The loan originator is responsible for ensuring that the borrower meets the underwriting standards in order to minimize the risk of default, in the event of which FHA pays the mortgage holder for the losses. The Office of the Inspector General for Housing and Urban Development (HUD) discovered through an investigation that 31 loans originated by GTL during a four-year period from 2008 to 2012 did not meet the underwriting cri- teria. As a result, 29 of those loans went to claim, which cost FHA more than $2.4 million in dam- ages. The remaining two loans that had not gone to claim were found to have a potential risk of about $250,000 in losses, for which GTL agreed to indemnify FHA. "By holding accountable lend- ers who fail to comply with underwriting requirements, we hope to send a message to all lenders that they must comply with government standards for federally insured loans," McQuade said in a statement. new york lender settles over Mortgage Fraud suit Federal lawsuit alleged that golden First Mortgage corp. violated the False claiMs through years oF Misconduct. new york // The U.S. govern- ment has settled a civil mortgage lawsuit against Golden First Mortgage Corp. that accused the company and its owner, David Movtady, of defrauding a government mortgage program, according to an announcement from U.S. Attorney for the Southern District of New York Preet Bharara. The Golden First, based in Great Neck, New York, agreed to pay $36 million to settle a complaint originally filed by Federal authorities in April 2013 and amended in August 2013. In the complaint, the government accuses Golden First of violating the False Claims Act through years of misconduct relating to the mortgage company's partici- pation in the Federal Housing Administration (FHA)'s Direct Endorsement Lender Program. The settlement, approved by U.S. District Judge Jesse Furman, also requires Movtady to pay a $300,000 penalty. As part of the settlement, Golden First and Movtady accepted responsibility for the alleged misconduct in the complaint. The complaint alleges that Golden First did not conform to all the FHA and HUD regulations related to the Direct Endorsement Lender Program by failing to maintain a qual- ity control program, despite a certification signed by Movtady in September 2008 that the com- pany was in compliance with all of the FHA/HUD regulations to maintain FHA/HUD approval. Movtady is permanently barred from doing any business with the federal government as part of the settlement. "This settlement holds Golden First and its owner, David Movtady, accountable for lying to the government about compliance with HUD requirements and ap- proving bad loans," Bharara said. "This type of conduct costs the United States millions of dollars when the loans inevitably default, and this office is committed to snuffing it out." Golden First was a participant in the Direct Endorsement Lender Program from 1989 to 2010, and Movtady served as the owner, operator, and president of Golden First from 1979 to 2010, according to the complaint. Being a Direct Endorsement Lender gave Golden First the authority to originate, underwrite, and certify mortgages for FHA insurance. HUD relies on lenders to properly review, certify, and underwrite loans before they are approved for FHA insurance, since HUD is on the hook for the cost if the loan later defaults. According to the complaint, Golden First certified that more than 1,000 mortgage loans met HUD's requirements for FHA insurance when in fact they did not. The complaint alleges that Golden First was in violation of three basic requirements of HUD's quality control program: first, maintaining a program independent of the lender's busi- ness units; second, disclosing loans with evidence of fraud or serious underwriting problems to HUD within 60 days of initial discovery; and third, the requirement to conduct a full review of a loan that defaults within the first six payments. ORIGINATION local edition percent. the underwriting the lenders, more lend- for months. they'll

Articles in this issue

Archives of this issue

view archives of TheMReport - The Three Percent Solution