Franklin American Mortgage Co., based in Franklin, Tennessee, is set to pay $70 million to settle a real estate fraud charge when they "knowingly misled the government about the quality of home loans it submitted for Federal Housing Administration insurance."
According to reuters.com, Franklin American caused a "substantial loss" when Federal Housing financed insurance claims of deficient loans and it happened from 2006 to 2012.
FHA was misled by Franklin American that "many of its loans [are] qualified for insurance." The latter's spokesperson did not respond urgently to a request of a statement regarding their case.
U.S Department of Justice said that their action of filing charges against Franklin American is part of their efforts of cracking down fraudulent mortgage loans that aided the booming of U.S Housing and Financial crises. The department also reported the details of the company's scheme. The report said "Franklin American offered bonuses to underwriters for generating more loans, employed unqualified junior underwriters to perform key functions, and disciplined underwriters if they failed to meet quotas."
In a report by bizjournals.com, U.S. Attorney John Walsh of Colorado investigated the case together with Justice Department's Civil Frauds unit and HUD. Walsh also said "Franklin promised that its loans met HUD's quality standards in order to obtain HUD insurance, but ignored widespread, systemic defects in those loans."
Even though the case was nationwide, Walsh is handling the case due to his expertise and an HUD office is located in Colorado.
Franklin American Mortgage Co. is able to pull off their fraudulent scheme due to their statues of "direct endorsement lender" which allows them and gives them authority to underwrite, originate and "endorse mortgages to for FHA insurance without review by either the FHA or HUD."
The Justice Department also added that "During this time, Franklin American employed unqualified junior underwriters to perform important underwriting functions. Franklin American also set high quotas for its underwriters and subjected underwriters to discipline if they did not meet their quotas. The company also sought to incentivize the production of loans by offering bonuses to its FHA underwriters."
What are your thoughts about Franklin American Mortgage Co.'s scheme? Sound it in the comments!
