Branch Banking and Trust Company Settled Alleged Violations of Federal Housing Administration Loan Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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

                                          September 30, 2016
                                                                                            MEMORANDUM NO:

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

FROM:          Nikita N. Irons
               Regional Inspector General for Audit, Atlanta Region, 4AGA 

SUBJECT:       Final Civil Action: Branch Banking and Trust Company Settled Alleged
               Violations of Federal Housing Administration Loan Requirements


The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General
(OIG), assisted the Department of Justice (DOJ), Civil Division, Commercial Litigation Branch
and the U.S. Attorney’s Office of the Northern District of Georgia in the civil investigation of
Branch Banking and Trust Company (BB&T). BB&T has its principal place of business in
Winston-Salem, NC.


The Federal Housing Administration (FHA) is a component of HUD. It provides mortgage
insurance for a person to purchase or refinance a principal residence. The mortgage loan is
funded by a lending institution, such as a mortgage company or bank, and the mortgage is
insured by FHA.

HUD’s direct endorsement lender program authorizes private-sector mortgage lenders to approve
mortgage loans for FHA insurance. Lenders approved for the program must follow FHA
requirements, including providing annual and per loan certifications that the lender complied
with these requirements when underwriting and approving loans for FHA insurance.

                                            Office of Audit (Region IV)
                               75 Spring Street, SW, Room 330, Atlanta, GA 30303
                                     Phone (404) 331-3369, Fax (404) 730-2382
                              Visit the Office of Inspector General Web site at www.hudoig.gov.

BB&T has been an FHA-approved direct endorsement lender since at least January 2006. As a
direct endorsement lender, BB&T was authorized by HUD to originate and underwrite mortgage
loans on HUD’s behalf, including determining a borrower’s creditworthiness and whether the
proposed loan met all applicable HUD requirements, without a preendorsement review of the
mortgage application by HUD. When a borrower defaults on an FHA-insured loan underwritten
and endorsed by a direct endorsement lender, such as BB&T, the lender (or its representative)
has the option of submitting a claim to HUD to compensate the lender for any loss sustained as a
result of the default. Therefore, once a mortgage loan is endorsed for FHA insurance, HUD
insures the risk of the borrower’s defaulting on that mortgage, which is realized if an insurance
claim is submitted.

                                                           RESULTS OF INVESTIGATION

Based in part on our review, the Federal Government alleged that BB&T violated the False
Claims Act when it originated and underwrote FHA mortgage loans that did not meet applicable
requirements. The Federal Government also alleged that BB&T did not maintain a quality
control program that complied with requirements. As a result of BB&T’s conduct, HUD insured
hundreds of loans approved by BB&T that were not eligible for FHA insurance under the direct
endorsement program and that HUD would not otherwise have insured. HUD incurred
substantial losses when it paid insurance claims on certain defaulted loans.

On September 29, 2016, BB&T entered into a settlement agreement with the Federal
Government to pay $83 million to avoid the delay, uncertainty, inconvenience, and expense of
lengthy litigation. As part of the settlement, BB&T agreed that it engaged in certain conduct in
connection with its origination, underwriting, and quality control of single-family residential
mortgage loans insured by FHA.1 The settlement was neither an admission of liability by BB&T
nor a concession by the United States that its claims were not well founded.

Of the total $83 million settlement, HUD FHA was to receive $35.7 million, and the remaining
portion will be paid to other Federal entities.


We recommend that HUD’s Office of General Counsel, Office of Program Enforcement,

1A.           Acknowledge that $35,700,000 of the $83,000,000 in the attached settlement represents
              an amount due HUD.

              As of the date of this memorandum, the settlement agreement of $83 million was reached
              and it represents an amount due HUD of $35,700,000, pending receipt from DOJ. The
              settlement agreement explains that payment is expected no later than seven days after the
  Loans covered in the settlement agreement included loans insured by FHA between January 1, 2006, and
September 30, 2014, that resulted in claims submitted to HUD on or before February 15, 2016, excluding origination
or underwriting of home equity conversion mortgages under 12 U.S.C. (United States Code) 1715z-20 and
streamlined refinances under 12 U.S.C. 1715n(a)(7).


              date of settlement. In accordance with HUD Handbook 2000.6, Rev 4, the final action
              target date will be set at November 7, 2016. At issuance of this memorandum, HUD OIG
              will enter a management decision into HUD’s Audit Resolution and Corrective Action
              Tracking System, along with any supporting payment information received to date.