Last week, the Department of Justice (DOJ) announced that MetLife Home Loans LLC, successor of MetLife Bank N.A. (MetLife Bank) agreed to pay the U.S. Government $123.5 million to settle allegations that it violated the False Claims Act (FCA) by knowingly underwriting thousands of unqualified mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD), Federal Housing Administration (FHA).  As a consequence of MetLife Bank’s alleged falsifications, the FHA incurred huge monetary losses when the unqualified loans went into default leaving the FHA responsible for covering unqualified loans insurance under the FHA program.

Since 1934, the FHA has insured over 34 million loans through HUD, allowing lenders to insure loans for borrowers that have less than perfect credit.  The FHA’s program also allows lower income borrowers to purchase homes by insuring qualified loans made by participating lenders such as MetLife Bank, against losses if the loans later default.  However, because the FHA does not review the underwriting of a loan before it is endorsed, it is expected that a participating lender will only submit loans to the FHA if they meet certain requirements intended to assure the borrower’s creditworthiness.  Loan guidelines, including debt-to-income ratios, specific credit rating requirements, and maximum loan amounts, were created by the FHA in order to protect the borrower and the lender.

MetLife Bank participated as a Direct Endorsement Lender (DEL) in the FHA insurance program, which gives lenders the authority to originate, underwrite, and certify mortgages for FHA insurance.  In the event that these loans default, the lender can submit an insurance claim for reimbursement of the amount of each defaulted loan.  According to the government’s allegations, between September 2008 and March 2012, MetLife repeatedly neglected to adhere to these guidelines and falsely claimed that mortgage loans it had created and insured were qualified for FHA coverage.  In addition, between January 2009 and August 2010, a range of 25 to 60 percent of MetLife Bank loans allegedly contained categories of deficiencies, which MetLife Bank called “material/significant.” Consequently, MetLife Bank’s misuse of government programs designed to expand home ownership, resulted in homes being foreclosed across the country, crippled the housing market, and caused undue harm on homeowners.