Finance of America Mortgage to Pay $14.5 Million to Resolve Whistleblower Lawsuit Related to FHA Fraud
ROCHESTER, N.Y., Dec. 12, 2018 /PRNewswire/ -- The United States Department of Justice announced today that Finance of America Mortgage, LLC ("FAM") has agreed to pay the United States $14.5 million to settle a False Claims Act lawsuit involving mortgage fraud. The lawsuit relates to Federal Housing Administration loans originated by Gateway Funding Diversified Mortgage Services LP ("Gateway"), which FAM acquired in 2015.
The settlement resulted from a lawsuit filed under the qui tam whistleblower provisions of the False Claims Act by Debra McGeehan, a former quality control underwriter for Gateway. Ms. McGeehan worked for Gateway during portions of 2009 to 2015.
"It is extremely frustrating when a mortgage company identifies issues with loans as part of its quality control process, but then deliberately ignores those findings," said McGeehan. "Gateway was only interested in its own financial interests, and was willing to ignore its own quality control findings in order to defraud the FHA program."
Under HUD's FHA mortgage program, HUD insures FHA loans that meet HUD's requirements, which can therefore be lucrative for lenders who can seek compensation from HUD for any loss sustained when a borrower defaults on a loan. However, HUD's requirements require that lenders self-report loans that lenders determine have underwriting errors.
According to the settlement agreement, Gateway did not maintain a proper quality control program as required by HUD for participation in the FHA program. While several of Gateway's management team notified the company that Gateway's loans had a high default rate, Gateway did not comply with HUD's self-reporting obligations. For example, in a February 2014 email, Gateway's Senior Vice President of Compliance and Credit Risk sent an email to Gateway's executive team noting that there were specific underwriters and branch offices "who show a pattern of poor performance." While Gateway identified loans during the quality control process that had material underwriting errors, Gateway did not routinely report those errors to HUD, as required. As a result, HUD incurred substantial losses when those loans defaulted and insurance payments were subsequently paid to Gateway.
Ms. McGeehan is represented by Patrick Solomon and Jonathan Ferris of Thomas & Solomon LLP in Rochester, New York. Ms. McGeehan is the firm's third client since 2016 to receive a multi-million dollar award for blowing the whistle on mortgage fraud.
As part of the settlement, the United States is awarding Ms. McGeehan $2,392,500 for the role she played in blowing the whistle on FAM's mortgage fraud. Individuals who identify fraud may be entitled to an award for alerting the government to fraud under the False Claims Act.
"Too often individuals, and especially underwriters, feel powerless in the mortgage industry where there has been rampant fraud for over a decade," said her attorney, Patrick Solomon. "Today's settlement is proof that individuals like Debra can make a difference in stopping this fraud. For her, it was never about the whistleblower award, it was just about doing the right thing and trying to get things to change."
Solomon said that FAM's settlement is just one of the few dozens of settlements with lenders in the past few years involving mortgage fraud. "It is very unfortunate that lenders continue to abuse the FHA mortgage program in underwriting loans that do not qualify for FHA insurance," he said. "Ten years after the subprime mortgage crisis, lenders continue to see FHA loans as an area that can be exploited. FHA mortgage fraud continues to be the norm, not the exception."
Ms. McGeehan and her attorneys also expressed their gratitude for the hard work of the United States Department of Justice, the HUD Office of Inspector General, and the U.S. Attorney's Office for the Northern District of New York in prosecuting this action.
About Thomas & Solomon LLP
Thomas & Solomon LLP is an employment law firm in Rochester, New York regularly representing qui tam whistleblowers in False Claims Act litigation. To date, the firm has represented whistleblowers in actions leading to more than $150 million in recoveries for the United States. The firm also regularly represents employees in all types of employment litigation, including workplace retaliation actions.
SOURCE Thomas & Solomon LLP
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