Walter Pays $29 Million to Settle Reverse Mortgage False Claims Allegations

Walter Investment Management Corp. (NYSE: WAC) has agreed to pay $29.63 million to resolve allegations that the company violated the False Claims Act in connection with its participation in the Department of Housing and Urban Development’s (HUD) Home Equity Conversion Mortgage (HECM) program, the Department of Justice announced Friday.

The settlement resolves allegations filed in a lawsuit by Matthew McDonald, former executive at Walter subsidiary Reverse Mortgage Solutions Inc. (RMS), under the whistleblower provisions of the False Claims Act. The claims resolved by the settlement are allegations only, and there has been no determination of liability.

The U.S. government alleged that from August 2009 to March 2015, RMS submitted false claims for debenture interest from HUD by failing to properly disclose that it had not met certain deadlines and, therefore, was not entitled to such interest payments.

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The government also alleged that from July 2010 to October 2014, Walter, through its subsidiaries, submitted false claims to HUD for the reimbursement of unlawful referral fees by falsely representing them to be lawful sales commissions.

According to the Department of Justice (DOJ), RMS used straw companies to liquidate foreclosed properties. Upon sale of the foreclosed property, the DOJ noted that the straw companies split the 6% sales commissions, with real estate agents sharing a 5% commission and the companies kept a 1% referral fee.

“These straw companies, in turn, deducted a small fee from the one-percent referral fee and kicked the remainder back to RMS,” wrote the DOJ in a release. “Nonetheless, RMS submitted insurance claims to HUD that included payment for the full six-percent sales commission, when, in fact, the payment included a prohibited referral fee.”

“This is a significant settlement concerning FHA’s reverse mortgage program, which is designed to benefit America’s seniors,” said HUD General Counsel Helen Kanovsky in a written statement. “We’re pleased that [Walter] agreed to accept financial responsibility for these violations.”

For his role, McDonald will receive $5.15 million as his share of the recovery in this case.

“We believe this resolution is in the best interest of the Company and our shareholders and are pleased to have resolved these claims,” said Walter Chairman and CEO Mark O’Brien in a prepared statement. “As a leading franchise in the reverse mortgage sector, RMS is fully committed to, and strongly supportive of, the HECM program and the benefits it provides to its customers.”

Written by Jason Oliva