Final Civil Action - Permanent Claim Block Placed on Borrower's Federal Housing Administration Loan Because It Did Not Qualify for Insurance

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-29.

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 29, 2016
                                                                                                      MEMORANDUM NO:

TO:                 William I. F. Collins
                    Program Director, NSC - Loss Mitigation and Servicing, HUFM2

FROM:               Christeen Thomas
                    Director, Joint Civil Fraud Division, GAW

SUBJECT:            Final Civil Action: Permanent Claim Block Placed on Borrower’s Federal
                    Housing Administration Loan Because It Did Not Qualify for Insurance


The Office of Inspector General (OIG) assisted the U.S. Attorney’s Office for the District of
New Jersey in the investigation of Finance of America Mortgage LLC. The investigation began
due to a qui tam 1 filing in the U.S. District Court for the District of New Jersey. The relator
alleged that Finance of America, through its acquisition of Gateway Funding Diversified
Mortgage Services LLP, knowingly participated in a mortgage fraud scheme involving the
origination and underwriting of loans for manufactured homes. Finance of America’s principal
place of business is in Horsham, PA.


The U.S. Department of Housing and Urban Development’s (HUD) FHA program provides
mortgage insurance for loans made by FHA-approved lenders. This insurance provides lenders
with protection against losses as the result of homeowners defaulting on their mortgage loans.
The lenders bear less risk because FHA will pay a claim to the lender in the event of the
homeowner’s default. Loans must meet certain FHA requirements to qualify for insurance.

    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.
When the relator acquired her property in Millville, NJ, on October 15, 2008, Gateway Funding
was a lender approved by HUD through the direct endorsement loan program. This program
granted Gateway Funding the authority to originate and underwrite FHA-insured loans without
prior approval from HUD. Gateway Funding certified to HUD that it would follow all HUD
regulations. Finance of America purchased Gateway Funding in April 2015.

                                    RESULTS OF INVESTIGATION

Our investigation found that the relator’s allegation regarding Finance of America was
unsubstantiated. We did not find indications of a mortgage fraud scheme involving FHA loans
for manufactured homes as alleged. However, the relator’s loan on her manufactured home did
not qualify for FHA insurance because the home was manufactured before June 15, 1976, when
the manufactured housing construction safety standards took effect. Therefore, the loan was
ineligible for FHA insurance, and HUD should not suffer losses as a result.


We recommend that HUD’s National Servicing Center

1A.       Take appropriate action to prevent an insurance claim on FHA loan number 351-
          5252839, preventing an estimated loss of $55,405 2 to the insurance fund, thereby
          recognizing funds put to better use.

HUD’s National Servicing Center placed a permanent block on the relator’s loan on April 21,
2016, which prevents FHA from paying a claim and preventing the loss of $55,405, thereby
putting these funds to better use. Therefore, no further action is required by the National
Servicing Center. At issuance of this memorandum, we will enter a management decision into
HUD’s Audit Resolution and Corrective Action Tracking System (ARCATS), showing that final
action was completed and the recommendation will be closed concurrently upon entry into

    We applied FHA’s average loss experience as of June 30, 2016, that was provided by HUD. We calculated the
    savings value at $55,405, which is 50 percent of the unpaid principal balance of $110,811.