Flagstar Becomes the Latest Bank to Settle False Claims Act Case

In the flurry of litigation following the mortgage crisis and on the heels a $158 million deal with Citigroup and a $1 billion settlement with Bank of America, Flagstar has agreed to pay $133 million to settle civil allegations that it improperly approved mortgage loans to be insured through a Federal Housing Administration (FHA) program. Flagstar admitted as part of the settlement that loans it underwrote and certified as eligible for FHA insurance did not comply with federal underwriting requirements and that many of the certifications were false.

The Justice Department’s complaint focused, amongst other things, on the financial incentives that Flagstar developed during the mortgage boom. It’s alleged that Flagstar set quotas for underwriters and paid incentive awards for those underwriters who beat their quota. In 2008 alone it awarded ten underwriters with at least $30,000 in incentive awards. A review of those underwriters’ loans showed that they had a higher default rate than average at Flagstar. Given that the Justice Department still has two other mortgage related cases pending, including a $1 billion suit against Deutsche Bank, we can expect to see additional litigation and possible settlements in the future.

For more information see:
http://www.washingtonpost.com/business/industries/flagstar-pays-133-million-to-settle-claims-it-defrauded-government-of-mortgage-insurance/2012/02/25/gIQABAs3ZR_story.html