oversight

                                                    U.S. DEPARTMENT OF
                                    HOUSING AND URBAN DEVELOPMENT
                                            OFFICE OF INSPECTOR GENERAL




                                                September 9, 2015
                                                                                                 MEMORANDUM NO:
                                                                                                 2015-CF-1806



Memorandum
TO:              Dane M. Narode
                 Associate General Counsel, Office for Program Enforcement, CACC

                 //signed//
FROM:            Kimberly Randall
                 Director, Joint Civil Fraud Division, GAW

SUBJECT:         Final Civil Action: Taylor, Bean & Whitaker Mortgage Corporation and Home
                 America Mortgage, Inc., Settled Civil Claims Related to Failing To Comply With
                 Federal Housing Administration Underwriting Requirements


                                               INTRODUCTION

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General
(OIG), assisted in an investigation into alleged violations of Federal Housing Administration
(FHA) regulations by Taylor, Bean & Whitaker Mortgage Corporation and Home America
Mortgage, Inc. Taylor, Bean & Whitaker is a former FHA-approved mortgage lender, with its
principal place of business located in Ocala, FL. Home America, a subsidiary of Taylor, Bean &
Whitaker, is a former FHA-approved loan correspondent, 1 with its principal place of business
located in Lawrenceville, GA.

The investigation included a qui tam 2 action filed under the False Claims Act, 31 U.S.C. (United
States Code) 3729, in the U.S. District Court for the Northern District of Georgia.


1
  A loan correspondent is a lender that may only originate FHA mortgages; may not sell insured mortgages to any
   lender other than an FHA-approved sponsoring lender; and may not hold, purchase, or service insured mortgages.
   A sponsor is a lender approved to participate in HUD’s direct endorsement program, which has formally
   established a relationship with one or more loan correspondents and notified HUD of the relationship, performs
   the loan underwriting function on behalf of the loan correspondent, and may close and submit the mortgage for
   insurance endorsement.
2
  The False Claims Act allows private persons to file suit for violations of the False Claims Act on behalf of the
   Government. A suit filed by an individual on behalf of the Government is known as a “qui tam” action, and the
   person bringing the action is referred to as a “relator.”
                                                        Joint Civil Fraud Division
                                         400 State Avenue, Suite 501, Kansas City, KS 66101
                                   Visit the Office of Inspector General Web site at www.hudoig.gov.
                                                BACKGROUND

Taylor, Bean & Whitaker and Home America participated in the direct endorsement program 3
from 1991 to 2010. Taylor, Bean & Whitaker became an approved lender in August 1991 and
was terminated in November 2010. Home America became an approved loan correspondent in
September 2000 and was terminated in April 2010. Home America’s approved sponsor was
Taylor, Bean & Whitaker.

In December 2006, the relators filed a qui tam action in the U.S. District Court for the Northern
District of Georgia. The relators alleged that Taylor, Bean & Whitaker and Home America
knowingly engaged in a pattern of fraudulent activity and business practices, including falsifying
and manufacturing loan documents, disregarding HUD regulations, and ignoring the absence of
necessary documentation to obtain financing for FHA-insured loans.

In 2009, Taylor, Bean & Whitaker and Home America separately filed petitions for relief under
Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Middle District of
Florida. These separate cases were administratively consolidated into one bankruptcy case.

In May 2010, the U.S. Department of Justice, on behalf of HUD, filed a proof of claim 4 with
the bankruptcy court against Taylor, Bean & Whitaker for nearly $179 million. The proof of
claim stated that the lender was liable for “civil, monetary, and administrative claims under the
False Claims Act for causing to be presented false or fraudulent claims; making, using or
causing to be made false statements to get a false or fraudulent claim paid; and/or conspiring
to defraud the government by getting false or fraudulent claims allowed or paid; or otherwise
violating the False Claims Act, the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801-
3812, and/or was liable under common law doctrines of payment by mistake, unjust
enrichment, and/or fraud.” The United States filed a similar proof of claim against Home
America for $131 million.

In September 2010, the United States intervened 5 in the civil action, contending that it had
certain civil claims against the two debtors arising from claims the debtors made against the FHA
insurance fund from May 2003 through August 2009 for Taylor, Bean & Whitaker and May
2003 through November 2009 for Home America.




3
  The direct endorsement program authorizes private-sector mortgage lenders to approve mortgage loans for
   insurance by FHA. Lenders approved for the program must follow various FHA requirements and provide annual
   and per loan certifications that the lender complied with these requirements when underwriting and approving
   loans for FHA insurance.
4
  A proof of claim is a form used by the creditor to indicate the amount of the debt owed by the debtor on the date of
   the bankruptcy filing. The creditor must file the form with the clerk of the same bankruptcy court in which the
   bankruptcy case was filed.
5
  If the Government intervenes in the qui tam action, it has the primary responsibility for prosecuting the action.


                                                          2
                              RESULTS OF INVESTIGATION

In December 2013, HUD, the relators, and the Taylor, Bean & Whitaker Plan Trust entered into
a settlement agreement regarding the civil action, which resulted in two approved claims by
HUD against Taylor, Bean & Whitaker in the bankruptcy action for $89.9 million and $82.2
million, respectively. In January 2015, the U.S. District Judge approved an interim distribution
to the U.S. Department of Justice, on behalf of HUD, of HUD’s pro rata share of funds available
to pay the $89.9 million claim. The amount distributed was $596,984. On January 22, 2015,
HUD received $489,527, and other entities received the remaining $107,457.

                                    RECOMMENDATION

HUD has recorded the interim distribution in its accounting records; therefore, no further action
is necessary.




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