Last Month the US Department of Justice (DOJ) settled its suit against Louisiana based IberiaBank for $11.7 Million for FHA Mortgages that were falsely certified as FHA compliant. 20% of that settlement was split between two whistleblowers. Meanwhile, lenders are complaining that FHA isn’t trustworthy. Wait, who misrepresented the loans as FHA compliant?

While Ben Carson told lenders that HUD is working to slow the wave of DOJ enforcements against Fair Housing lending; cases continue to mount. Lenders are frustrated by DOJ suits, but is it really the fault of HUD? IberiaBank admitted that it claimed it was not paying improper incentives for FHA loans, but through 2014 (during the period in question), IberiaBank paid its underwriters commissions. With incentive programs, strict quality control is required, which IberiaBank claimed to have, but evidently did not. IberiaBank is not the first to settle the DOJ False Claims FHA suit. Check out the big price tags the following banks got hit with:

False Claims FHA Lending Settlements

  • Wells Fargo $1.2 billion
  • Franklin American: $70 million
  • Walter Investment: $29.6 million
  • First Tennessee (regional First Horizon National) $212.5 million
  • M&T Bank: $64 million
  • Freedom Mortgage $113 million
  • United Shore Financial Services: $48 million
  • PHH Corp: $75 million

As of December 2016, the DOJ announced $1.7 billion in settlements were collected during 2016. When you include the 2017 settlements, the figure rises to $1.8 Billion. Where did that money go? Did it relieve the consumers affected? The Wall Street Journal (WSJ) published a wonderful article showing the allocation of prior settlements between consumer relief, housing agencies, treasury, states, other federal agencies and other. Consumer relief received the largest portion of the penalties, but consumers could not directly apply for the aid. Consumers had to ask their lenders for aid, and the lenders received partial compensation for loan modifications they finalized. Meanwhile, lenders often dragged their feet during the modification process pushing the loan balance higher before working out any repayment. The treasury received a share of the penalties, which went into the treasury’s general fund which is spent by Congress. See the WSJ graphics here.

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