A False Claims Act (“FCA”) probe, jointly conducted by the Department of Justice (“DOJ”) and Department of Housing and Urban Development (“HUD”), has settled with Tulsa, Oklahoma-based mortgage company Finance of America Reverse for $2.47 million.  The investigation centered around the business practices of Urban Financial Group, Inc. (“Urban Financial”), which Finance of America Reverse acquired in November 2013.  Urban Financial allegedly flouted numerous material HUD-imposed regulations when providing Home Equity Conversion Mortgages, which were insured through HUD’s Federal Housing Administration using federal tax dollars.

The settlement resolves any potential FCA liability before any formal complaint was filed in the federal court.  Of the total settlement amount, $1.97 million was allocated to resolve potential FCA liability, and the remaining $500,000 settled Finance of America Reverse’s administrative liabilities to HUD.

The Federal Housing Administration (“FHA”) oversees the Home Equity Conversion Mortgage program, which allows senior citizens over age 62 to obtain a reverse mortgage on their home.  In exchange for equity in the home, these reverse mortgages provide senior citizens with supplemental income that allows them to age in place.

The reverse mortgages are entered into between the seniors and private lenders but are importantly insured, using taxpayer dollars, by the FHA.  The Home Equity Conversion Mortgage program requires that private lenders use accurate and reliable data on loan applications when approving loans using FHA’s mortgage insurance to ensure the insurance policies are granted wisely.

Through the Government’s probe, it was discovered that the home appraisals necessary to obtain FHA mortgage insurance under the Home Equity Conversion Mortgage program were seemingly tainted by Urban Financial’s actions, in violation of HUD regulations.  Specifically, Urban Financial was alleged to have improperly influenced the appraisers it hired by providing appraisal forms showing the proposed loan amount and other information that would tend to influence the appraised value.

As stated by HUD Inspector General Rae Oliver Davis, “FHA and the taxpayers rely on lenders to originate H[ome] E[quity] C[onversion] M[ortgage] loans with integrity” to avoid increases in “losses to HUD’s insurance funds.”

While a qui tam whistleblower did not initiate this FCA investigation, it is important to note that private citizens who have knowledge of past or ongoing regulatory violations related to FHA-insured mortgage programs can file an FCA lawsuit. The FCA’s qui tam provisions allow individuals to file complaints against violators and share in any potential recovery made by the Government.

In recent months, DOJ and HUD have signaled an intent to ramp down aggressive use of the FCA as an enforcement tool for federally insured mortgage fraud.  The investigation into Urban Financial undoubtedly began before that announcement.  Nonetheless, this settlement provides at least some evidence that the two departments are still willing to use the FCA as a potent tool, as it has proven to be, for combating fraud against the Government and taxpayer dollars.