Federal Prosecutors Announce $4 Million Settlement Of Mortgage Insurance Program Fraud

SAN FRANCISCO, CA —Federal prosecutors in San Francisco and Atlanta announced Monday that a Southern California mortgage company has agreed to pay $4,157,000 to settle allegations that it defrauded a federal housing program.

The settlement with Prospect Mortgage Co. of Sherman Oaks was announced by U.S. Attorneys Brian Stretch of San Francisco and John Horn of Atlanta. Federal attorneys in those two offices conducted the investigation.

The alleged civil fraud was carried out against the Direct Endorsement Lender Program, which is administered by the Federal Housing Administration and U.S. Department of Housing and Urban Development.

In the program, mortgage lenders have the authority to originate, underwrite and endorse mortgages for FHA insurance. If a mortgage borrower defaults on a loan, the institution holding the loan can submit a claim to
the government to recover its losses.

The prosecutors said that as part of the settlement, Prospect acknowledged that in two branches in Georgia and North Carolina, it endorsed for FHA insurance loans that were not originated in compliance with HUD
requirements and falsely certified that the noncompliant loans were underwritten in accordance with HUD requirements.

The company also acknowledged that between 2007 and 2009, it had a default rate of 12.29 percent on insured loans in the Atlanta region, well above the national average, and that 76 percent of the defaulted loans were attributable to the two branches.

Stretch said in a statement, "Prospect's knowing failure to comply with material HUD loan origination requirements not only resulted in major losses to the public fisc, but also served to undermine the FHA program."

In February, Prospect Mortgage became a subsidiary of HomeBridge Financial Services Inc. of Iselin, N.J.

— Bay City News; Image via Shutterstock