Catch of the Week — Universal American Mortgage Company

Universal American Mortgage Company (UAMC), a Miami-based mortgage company, agreed on October 19 to a $13.2 million settlement to resolve allegations that it violated the False Claims Act (FCA) by falsely certifying that it complied with Federal Housing Administration (FHA) mortgage-insurance requirements in connection with certain loans. UAMC is part of Lennar, one of America’s leading homebuilders.

The settlement resolves allegations brought by Kat Nguyen-Seligman, a former employee of a related UAMC entity, in a whistleblower lawsuit filed under the False Claims Act. Nguyen-Seligman will receive nearly $2 million from the settlement.

The FCA allegations centered on UAMC’s violations of program rules designed to ensure mortgage lenders properly underwrite and certify mortgages for FHA insurance, and maintain a quality control program to prevent and correct deficiencies in the underwriting process.

UAMC was a direct endorsement lender (DEL) in the U.S Department of Housing and Urban Development’s (HUD’s) FHA insurance program. DELs 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 resulting losses. Under the DEL program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance. As a result, DELs must follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance. DELs are further obligated to maintain a quality control program to prevent and correct deficiencies in their underwriting practices.

Between January 1, 2006, and December 31, 2011, the United States alleged that UAMC knowingly submitted non-qualifying loans for FHA insurance. Further, UAMC improperly incentivized underwriters and knowingly failed to perform quality control reviews, violating HUD requirements and contributing to UAMC’s submission of defective loans.

Several U.S. attorneys commented on this settlement. U.S. Attorney Joseph H. Harrington for the Eastern District of Washington stated, “FHA mortgages are vital to first-time homebuyers and to families whose credit and assets were damaged by the 2008 economic crisis.” He continued: “FHA underwriting and other requirements are critical to safeguarding the integrity of the public money used to operate this important program. We will continue to work with our law enforcement partners to ensure that mortgage lenders and others who profit from this program, while ignoring its rules, will be held accountable.” U.S. Attorney Annette L. Hayes for the Western District of Washington commented: “In a quest for profits, mortgage companies have ignored important lending standards[.] . . . Not only does this harm the borrowers leaving them over their heads in debt and underwater on their mortgages, it harms taxpayers because the mortgages are backed by government insurance. This settlement should serve as a warning to other lenders to diligently follow the rules.”

Whistleblower rewards are available to individuals who file claims under the qui tam provisions of the False Claims Act. Like the whistleblower in this settlement, whistleblowers can be rewarded under the statute.

If you would like more information or would like to speak to a member of Constantine Cannon’s whistleblower lawyer team, please click here.

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