PHH Corp., PHH Mortgage Corp. and PHH Home Loans (collectively, PHH) have agreed to pay the United States $74,453,802 to resolve allegations that they violated the False Claims Act.

The government claimed PHH knowingly originated and underwrote mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA), guaranteed by the United States Department of Veterans Affairs (VA), and purchased by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) that did not meet applicable requirements, the Justice Department announced yesterday.

PHH has agreed to pay $65 million to resolve the FHA allegations and $9.45 million to resolve the VA and FHFA allegations.

“PHH submitted defective loans for government insurance, and homeowners and taxpayers paid the price. This significant resolution helps rectify the misconduct by returning more than $74 million in wrongfully claimed funds to the government,” Acting U.S. Attorney for the District of Minnesota Gregory Brooker said in a statement. “I commend the efforts of this office’s Civil Division in reaching a successful resolution.”

The settlements announced today resolve allegations that PHH failed to comply with certain FHA, VA, Fannie Mae and Freddie Mac origination, underwriting and quality control requirements.

PHH has participated as a direct endorsement lender (DEL) in the FHA insurance program since at least January 2006. Under the DEL program, the FHA does not review a loan before it is endorsed for FHA insurance for compliance with FHA’s credit and eligibility standards, but instead relies on the efforts of the DEL to verify compliance. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance.

As part of the settlement, PHH admitted to the following facts concerning the FHA loans:

Between Jan. 1, 2006, and Dec. 31, 2011, it certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements and did not adhere to FHA’s self-reporting requirements. Examples of loan defects that PHH admitted resulted in loans being ineligible for FHA mortgage insurance included:

• Failing to document the borrowers’ creditworthiness.
• Failing to document the borrower’s claimed net equity in a prior residence or obtain documentation showing that the borrower had paid off significant debts.
• Insuring a loan for FHA mortgage insurance even though the borrower did not meet HUD’s minimum statutory investment for the loan.

PHH audited a targeted sample of government loans for closing or pre-insuring requirements and found that its “percent accurate” did not exceed 50 percent during 2007. Since at least 2006, HUD has required self-reporting of material violations of FHA requirements. However, between Jan. 1, 2006, and Dec. 31, 2011, PHH Home Loans did not self-report any loans to HUD; rather, PHH Home Loans did not self-report any loans to HUD until 2013, after the United States commenced its investigation resulting in this settlement.

As a result of PHH’s conduct and omissions, PHH admitted HUD insured loans endorsed by PHH that were not eligible for FHA mortgage insurance under the DEL program, and that HUD would not otherwise have insured. It admitted that HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

In addition, from at least 2005 to 2012, PHH was a VA approved lender, originating and underwriting mortgage loans and obtaining VA loan guarantees. The settlement resolves the United States’ claims and potential claims that PHH originated loans that it submitted for guarantee by the VA that did not meet the VA’s requirements.

Also from at least 2009 to 2013, PHH sold mortgage loans to Fannie Mae and Freddie Mac. The settlement resolves the United States’ contentions that PHH originated and sold loans to the Freddie Mac and Fannie Mae that did not meet their requirements.

“This case demonstrates HUD’s resolve in protecting the integrity of its mortgage insurance programs for the benefit of all Americans, and in particular, first time homebuyers,” Dane Narode, HUD’s associate general counsel for program enforcement, said in a statement. “We are gratified that PHH has accepted responsibility for its actions.”

Some of the allegations resolved by these settlements included in a whistleblower lawsuit filed under the False Claims Act by Mary Bozzelli, a former employee of PHH, against PHH Corp. and PHH Mortgage Corp. Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery. Bozzelli will receive over $9 million from the settlements.