VA Home Loan Centers pushing for restoration of integrity after civil fraud case alleged reckless mortgage lending and false claims by Deutsche and subsidiary MortgageIT.
The top loan administrator at VA Home Loan Centers (VA-HLC) is commending the government for winning a settlement with one of the worst institutional offenders in the run-up to the crash of the real estate market, which includes an admission of filing false claims as well as more than $200 million in damages.
“This settlement is a positive move and indicative of a modest, but gathering wave of government oversight,” said Phillip Georgiades, chief loan steward at VA-HLC, which is headquartered in San Diego. “It not only reimburses taxpayers some of the money that it lost as a result of unethical business practices, it also sends a clear message that there is indeed a price to pay for running roughshod over a system that was meant to streamline a process by removing a layer of red tape.”
The government’s lawsuit, filed May 3, 2011, sought damages and civil penalties under the False Claims Act for repeated false certifications to HUD in connection with the residential mortgage-origination practices of MortgageIT, a wholly owned subsidiary of Deutsche Bank, AG.
“Of course it would have been a good deal better if the company involved would have taken responsibility for its actions without the government having to spend millions of dollars investigating and taking them to court.”
For ten years, the suit alleges, MortgageIT’s participation in the Federal Housing Administration’s (FHA) Direct Endorsement Lender program was fraught with deception and gaming of a system that allowed companies to self-certify homebuyers qualifications for FHA mortgage insurance, thereby adding a level of efficiency, after years of complaints that the certification process was too cumbersome.
“Streamlining the certification process was and remains a good idea,” Georgiades said. “But its success is predicated on integrity from companies in the private sector combined with adequate oversight by the government.”
The streamlined process – the Direct Endorsement Lender program (DEL) – delegates authority to participating private lenders to endorse mortgages for FHA insurance. But the suit alleges that, among other things, the defendants submitted false certifications to HUD, including false certifications that MortgageIT was originating mortgages in compliance with HUD rules when in fact it was not.
“Now, with this settlement, MortgageIT and Deutsche Bank have admitted, acknowledged, and accepted responsibility for much of the bad behavior they’ve been accused of,” said Georgiades. “They deserve a little credit for taking responsibility now; but they will fittingly pay a large price for their actions – and hopefully be better as a result.”
MortgageIT admitted that its false claims and certifications unlawfully cost the government millions of dollars. The defendants also agreed to pay $202.3 million to the United States to resolve the government’s claims for damages and penalties under the False Claims Act. The settlement was approved by United States District Judge Lewis Kaplan.
“MortgageIT and Deutsche Bank treated FHA insurance as free government money to backstop lending practices that did not follow the rules,” said Manhattan U.S. Attorney Preet Bharara in a written statement.
“The U.S. Attorney is telling lenders to be aware that if they treat the FHA like their own personal ATM machine, there will be a day of reckoning that could cost them hundreds of millions of dollars,” Georgiades said. “Stopping taxpayers from being fleeced helps everyone in the economy, restoring integrity in the real estate-lending industry helps homebuyers particularly.”
On the topic of help for homebuyers, Georgiades points to the veterans-only programs of VA Home Loan Centers as examples of sound, integrity-based real estate lending best practices.
“A good example of what an integrity-based lending program is the HAS program,” he said. “HAS stands for Homeowners Action Services℠. As the name implies, HAS does the heavy lifting involved in securing a loan for buying or refinancing a home.”
The case is captioned U.S. v. Deutsche Bank AG et al, U.S. District Court, Southern District of New York, No. 11-02976 (S.D.N.Y.)
For more information about VA home loans; how organizations such as VA-HLC are working to restore integrity to the real estate market; or eligibility requirements and loan limits, as well as how VA-HLC helps veterans with VA loans, refinancing and foreclosure avoidance, call 888-573-4496 or visit vahomeloancenters.org.
About VA-HLC / VA Home Loan Centers
VA Home Loan Centers is a qualified lender of mortgage loans to United States Veterans. The VA loan program helps veterans, active and former duty military, and certain spouses of wounded, MIA or KIA United States service personnel achieve the American dream homeownership. Services provided by VA Home Loan Centers include real estate representation such as VA loan purchase assistance and VA loan application processing.