Regions Bank Agrees to Pay $52.4 Million to Resolve Alleged False Claims Act Liability Arising from FHA-Insured Mortgage Lending

WASHINGTON, D.C. – (RealEstateRama) — Regions Bank (Regions) has agreed to pay $52.4 million to the United States to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements, the Department of Justice announced today. Regions is headquartered in Birmingham, Alabama.

“Mortgage lenders that participate in the FHA insurance program must follow the requirements intended to safeguard its integrity and to protect homeowners,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “We will continue to hold responsible lenders that knowingly violate these important requirements.”

“The FHA insurance program plays a critical role in the stability of the housing market,” said U.S. Attorney for the Middle District of Florida A. Lee Bentley III. “Lender misconduct that puts this program at risk will not be tolerated.”

Since at least January 2006, Regions has participated as a direct endorsement lender (DEL) in the FHA insurance program. A DEL has the authority to originate, underwrite and endorse mortgages for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan. Under the DEL program, the FHA does not review a loan before it is endorsed for FHA insurance but instead relies on the efforts of the DEL to verify compliance. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance.

As part of the settlement announced today, Regions admitted that between Jan. 1, 2006, and Dec. 31, 2011, it certified for FHA insurance certain mortgage loans that did not meet certain HUD underwriting requirements regarding borrower creditworthiness. In addition, between Jan. 1, 2006 and Dec. 31, 2011, Regions did not maintain a quality control (QC) program that fully complied with the requirements established by HUD. Regions’ QC Department did not consistently review an adequate sample of FHA-insured loans. Moreover, to the extent that Regions’ QC Department identified deficiencies during the course of its loan review, Regions engaged in a pattern of “curing” QC findings by obtaining documentation that was not available to the underwriter at the time the loan was approved. As a result, the defect rate reported to senior management was understated. Regions also failed to review Early Payment Default (EPD) loans in accordance with HUD guidelines. Regions was required to review all loans that became 60 days past due within the first six months. Nevertheless, at certain times prior to 2011, as part of its EPD review, Regions reviewed only those loans that became 90 days past due.

Additionally, Regions did not fully adhere to HUD’s self-reporting requirements. During the period between Jan. 1, 2006, and Dec. 31, 2011, the HUD Handbook required lenders to report “findings of fraud” or “other serious violations” or “serious material deficiencies” to HUD. Although Regions’ monthly QC reviews identified numerous FHA-insured loans for that period that contained material deficiencies, Regions did not begin self-reporting these materially deficient loans to HUD until 2011.

As a result of Regions’ conduct and omissions, HUD insured hundreds of loans approved by Regions that were not eligible for FHA mortgage insurance under the DEL program and that HUD would not otherwise have insured. HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

“FHA-approved lenders have a responsibility to ensure that FHA-insured loans meet our standards, which are in place for the protection of FHA’s insurance fund,” said Helen Kanovsky, HUD’s General Counsel. “The agreement we announce today should serve as a reminder that sustainable homeownership starts with compliance with underwriting requirements.”

“This settlement resolves allegations that a financial institution, trusted to comply with FHA loan origination, underwriting and quality control requirements, failed to meet its obligations as a participant in the FHA program,” said Inspector General David A. Montoya for HUD. “The bank’s actions impact the solvency of the FHA insurance fund. It is through the combined efforts of the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Middle District of Florida, HUD and the Office of Inspector General that we continue to ensure the integrity of this important FHA program to American homeowners.”

The settlement was the result of a joint investigation conducted by HUD, the HUD Office of Inspector General, the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office for the Middle District of Florida. The claims asserted against Regions are allegations only, and there has been no determination of liability.