On August the 8th, PHH Corp., PHH Mortgage Corp., and PHH Home Loans agreed to pay the United States more than $74 million to resolve allegations that the company violated the False Claims Act. The company was accused of knowingly creating and underwriting mortgage loans insured by the Department of Housing and Urban Development’s Federal Housing Administration.
The loans were guaranteed by the Department of Veterans Affairs and subsequently purchased by Fannie Mae and Freddie Mac. Unfortunately, those loans did not meet applicable requirements. While PHH is based out of Mount Laurel, New Jersey, the PHH Home Loans subsidiary operates out of Edina, Minnesota.
PHH will pay $65 million to settle the FHA allegations, while $9.45 million will resolve allegations put together by the VA and FHFA. The settlements will resolve allegations that PHH failed to comply with certain origination, underwriting and quality control requirements put forth by the FHA, VA, Fannie Mae and Freddie Mac. PHH has participated as a DEL, Direct Endorsement lender, in the Federal Housing Administration insurance program since January of 2006.
As a Direct Endorsement lender, PHH has the right to originate, underwrite and endorse mortgages for Federal Housing Administration insurance. After the DEL approves the loan and it defaults, the holder can file an insurance claim with HUD to attempt to recuperate the losses associated with the default. The FHA does not verify the eligibility of the loan before it is endorsed for insurance. Instead, the agency relies on the direct endorsement lender to verify that the loan is indeed in compliance with the regulations.
DELs are required to follow certain rules to ensure that they properly underwrite and certify mortgages for FHA insurance. PHH has admitted to several actions as a part of the settlement. Between January the 1st of 2006 and December the 31st of 2011, PHH certified FHA insurance mortgage loans that failed to meet HUD underwriting requirements. Simultaneously, it did not adhere to self-reporting requirements set forth by the FHA.
PHH admitted that it had failed to document the borrower’s creditworthiness. This would normally include verifying their employment and acquiring the appropriate credit reports. The company also failed to document the borrower’s claimed net equity. PHH also insured a loan for FHA mortgage insurance despite the borrower not meeting HUD’s requirements.
Since 2006, HUB has made it a requirement that companies self-report violations of FHA requirements. PHH Home Loans failed to do so during this time period. It wasn’t until after 2013 that PHH Home Loans began reporting the loans and this came after the United S
tates initiated an investigation into the matter. PHH has admitted that HUD has taken substantial losses due to its actions. PHH was also a VA approved lender from 2005 to 2012. The VA helps veterans and service members by paying a portion of their home loan.
The settlement will effectively resolve claims that PHH originated loans that did not meet the requirements created by the VA. PHH was also accused of selling mortgage loans to Fannie Mae and Freddie Mac between 2009 and 2013. The United States contended that PHH originated and sold loans to these entities, despite not meeting their requirements.
The allegations resolved by the settlements also include a whistleblower lawsuit filed under the False Claims Act. That lawsuit was brought by former PHH employee, Mary Bozzelli. Thanks to the False Claims Act, private citizens have the ability to sue on behalf of the government and share any money recovered. In this case, Mary Bozzelli will receive more than $9 million from the settlements.