Mount Laurel, N.J.-based Freedom Mortgage Corp. will pay $113 million to resolve allegations from the U.S. Department of Housing and Urban Development (HUD) that it violated the False Claims Act by knowingly originating and underwriting Federal Housing Administration (FHA)-backed mortgages that did not meet FHA requirements.
“Freedom Mortgage did not properly comply with FHA rules for the mortgages it was generating and did not adequately monitor early payment defaults,” says Paul J. Fishman, U.S. Attorney for the District of New Jersey, in a U.S. Department of Justice (DOJ) press release. “It also failed to report to HUD the defaults it did discover, as required by its participation in the program.”
HUD alleges that Freedom Mortgage took advantage of its position as a direct endorsement lender in originating the faulty loans. Loans that are originated through the FHA’s direct endorsement program do not get reviewed for compliance until they are endorsed for FHA insurance. Therefore, it is up to the lender to ensure that all quality control (QC) measures are in place so that loans meet FHA direct endorsement requirements.
The loans in question were originated between Jan. 1, 2006, and Dec. 31, 2011, according to the DOJ’s release. HUD alleges that during this time, Freedom Mortgage did not always perform timely QC reviews or audits of loans in early payment default (EPD), as required by HUD, nor did it pass that info along to its QC team and HUD in a timely manner.
“The EPD QC reviews that Freedom Mortgage did perform revealed high defect rates, exceeding 30 percent between 2008 and 2010,” the DOJ says in its release. “Yet, between 2006 and 2011, Freedom Mortgage did not report a single improperly originated loan to HUD, despite its obligation to do so. In 2012, after identifying hundreds of loans that ‘possibly should have been self-reported to HUD,’ it reported only one.”