United Shore Financial Services LLC Agrees To Pay $48 Million (FHA-Insured Mortgage Lending)

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https://www.justice.gov/usao-edmi/pr/united-shore-financial-services-llc-agrees-pay-48-million-resolve-alleged-false-claim-0

Department of Justice
U.S. Attorney’s Office
Eastern District of Michigan

FOR IMMEDIATE RELEASE
Wednesday, December 28, 2016

United Shore Financial Services LLC Agrees To Pay $48 Million To Resolve Alleged False Claims Act Liability Arising From Fha-Insured Mortgage Lending

WASHINGTON - United Shore Financial Services LLC (USFS) has agreed to pay the United States $48 million to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements, the Justice Department announced today. USFS is headquartered in Troy, Michigan.
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During the time period covered by the settlement, USFS participated as a direct endorsement lender (DEL) in the FHA insurance program. A DEL has the authority to originate, underwrite and endorse mortgages for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan. Under the DEL program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance, to maintain a QC program that can prevent and correct deficiencies in their underwriting practices, and to self-report any deficient loans identified by their QC program.

The settlement announced today resolves allegations that between Jan. 1, 2006, and Dec. 31, 2011, USFS failed to comply with certain FHA origination, underwriting and QC requirements. As part of the settlement, USFS admitted to the following facts: USFS improperly pressured underwriters to approve FHA mortgages and its compensation plan used a formula expressly tying underwriter compensation to the percentage of loans approved by the underwriter and closed by USFS. USFS also falsely certified that direct endorsement underwriters personally reviewed appraisal reports prior to USFS approving and endorsing mortgages for FHA insurance. Additionally, although USFS’ internal QC reviews showed severe problems with FHA insured mortgages, USFS routinely failed to provide any meaningful information to senior management regarding its QC findings. USFS also failed to adhere to HUD’s self-reporting requirements. While USFS’s QC reviews identified hundreds of materially-deficient FHA insured loans during the time period at issue, USFS self-reported only three loans to HUD.

As a result of USFS’ conduct and omissions, HUD insured hundreds of loans approved by USFS that were not eligible for FHA mortgage insurance under the Direct Endorsement program, and that HUD would not otherwise have insured. HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

Further, on Jan. 10, 2014, after the United States initiated an investigation into USFS, USFS made certain discretionary distributions to a shareholder in the company.
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