The United States Department of Justice (DOJ) has filed a complaint against a reverse mortgage company for allegedly forging certifications and using unqualified underwriters to approve Federal Housing Administration (FHA)-backed Home Equity Conversion Mortgage (HECM) loans originated between 2008 and 2010.
Nutter Home Loans (formerly known as James B. Nutter & Co.) allegedly undertook these practices in an effort to bolster its production of reverse mortgage loans, according to the announcement of the filing released on Monday by the DOJ and court documents obtained by RMD. When reached for comment, legal representation for Nutter described the allegations as “devoid of reliable facts.”
“The United States’ complaint alleges that in order to significantly increase its loan production, Nutter used unqualified underwriters lacking the requirements established by [the U.S. Department of Housing and Urban Development] (HUD) to review and approve HECMs that Nutter ultimately insured with the FHA,” the announcement of the complaint reads. “Moreover, on other loans, Nutter forged the signatures of qualified underwriters to make it appear that a qualified underwriter had reviewed and approved the loan.”
The allegations, if true, would do damage to the financial viability of the HECM program inside the Mutual Mortgage Insurance Fund (MMIF), and this action signals that the federal government takes seriously any threat to the integrity of the HECM program, according to HUD Inspector General Rae Oliver Davis.
“Lenders who willfully disregard FHA requirements for HECM loans expose the program to significant financial losses that threaten the future availability of this important program to seniors,” said Davis in the announcement of the complaint. “This complaint is evidence that we will tirelessly investigate allegations of abuses of the HECM program by FHA lenders.”
For its part, Nutter Home Loans responded to the DOJ complaint by saying it is “devoid of reliable facts,” and maintains that the company has 70 years of history in which it has made “fair and equitable” home loans available to a wide variety of customers, additionally stemming from its status as one of the first lenders asked by HUD to participate in underwriting the first HECM loan in the 1980s according to a statement issued to RMD.
“This action by the Justice Department is, at best, a dispute over alleged technical violations and process errors related to the underwriting of Home Equity Conversion Mortgages, during the time period 2008 to 2010,” said Edward T. Kang, a partner in the Washington D.C. office of Alston & Bird LLP, who is defending the company in this action. “Not only do the allegations relate solely to conduct that occurred over a decade ago, but the complaint also fails to mention that during this period, HUD’s guidelines were far from clear and consistent. The company complied with HUD’s then-applicable guidelines as they reasonably understood them. The Justice Department’s belated allegations in this case are an attempt to rewrite the guidelines ten years after the fact.”
The company’s representation disputes both the complaint’s factual accuracy and legal merits, and “are confident that when the relevant facts and law are presented to a neutral fact-finder, the company will prevail,” Kang told RMD in a statement.
The complaint has been filed by the DOJ under the purview of both the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the False Claims Act, according to the announcement. Last year, both HUD Secretary Dr. Ben Carson and Attorney General William Barr signed an inter-agency memorandum of understanding (MOU), setting “prudential guidance” on the appropriate use of the False Claims Act for violations by FHA lenders.
The issue which prompted the complaint was investigated by the Commercial Litigation Branch of the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the District of Columbia, HUD, and HUD’s Office of Inspector General (OIG).
“The claims asserted against the defendant are allegations only, and there has been no determination of liability,” the announcement of the complaint specifies.
Nutter Home Loans is a DBA of James B. Nutter and Company, and has endorsed 20 HECM loans over the past 12 months according to data shared with RMD from Reverse Market Insight (RMI).
Read the announcement of the complaint at the U.S. Department of Justice.