Final Civil Action: City First Mortgage Services, LLC, and Van Wagoner Investment Company Settled Allegations of Making False Certifications

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-12.

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 12, 2016
                                                                                                   MEMORANDUM NO:

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

FROM:           Ronald J. Hosking
                Regional Inspector General for Audit, 0AGA

SUBJECT:        Final Civil Action: City First Mortgage Services, LLC, and Van Wagoner
                Investment Company Settled Allegations of Making False Certifications


Based on a request from the Assistant U.S. Attorney’s Office in Salt Lake City, UT, we provided
information about single-family lenders with high default rates. We then reviewed the available
case binders for 38 loans for which the Federal Housing Administration (FHA) had paid claims that
were underwritten by City First Mortgage Services, LLC. We completed the review and referred
alleged violations to the U.S. Department of Housing and Urban Development’s (HUD) Office of
Program Enforcement for action under the Program Fraud Civil Remedies Act of 1986.


The objective of FHA’s mortgage insurance program is to help people undertake home
ownership. HUD insures lenders against loss on mortgage loans. These loans may be used to
finance the purchase of proposed, under construction, or existing one-to-four-family housing, as
well as to refinance indebtedness on existing housing. The program is authorized by section
203(b) of the National Housing Act as amended (Public Law 73-479, 12 U.S.C. (United States
Code) 1709 and 1715(b)).

HUD program regulations are in 24 CFR (Code of Federal Regulations) Part 203. HUD provides
program requirements in HUD Handbooks 4155.1, Mortgage Credit Analysis for Mortgage
Insurance, and 4155.2, Lenders’ Guide to Single Family Mortgage Insurance Processing, among
others. HUD regulations at 24 CFR 203.255 state that direct endorsement lenders using FHA’s
TOTAL Scorecard must comply with the TOTAL Scorecard User’s Guide.

                                                   Office of Audit Region 10
                                        909 First Avenue, Suite 126, Seattle, WA 98104
                                           Phone (206) 220-5360, Fax (206) 220-5162
                              Visit the Office of Inspector General Web site at www.hudoig.gov. 
A lender’s claim for payment on a government mortgage insurance obligation is a false claim
within the coverage of the False Claims Act if that obligation was induced by a false or
fraudulent application (or supporting documentation) for the insurance or guaranty. Each person
who caused the application or supporting documentation to be submitted to the government,
knowing it to be false, is liable for the presentation of the false claim. The False Claims Act
applies to “any person who knowingly assisted in causing the government to pay claims which
were grounded in fraud, without regard to whether that person had direct contractual relations
with the government”.

                                      RESULTS OF REVIEW

On July 20, 2014, HUD filed a complaint under the Program Fraud Civil Remedies Act of 1986
against City First and its owner, alleging that they failed to follow FHA requirements when
originating and underwriting 11 FHA-insured loans. HUD alleged that this failure amounted to City
First’s and its owner’s submitting false certifications on the 11 loans.

City First and its owner disputed HUD’s claims. However, to arrive at a mutually satisfactory
resolution of the matter without the expense and uncertainty of further litigation, City First and its
owner agreed to pay HUD $425,000. The settlement agreement did not constitute an admission of
liability or fault by any party.


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

1A. Acknowledge that the attached settlement agreement for $425,000 represents an amount due
      As of July 22, 2016, the settlement agreement of $425,000 had been reached, and it
      represents an amount due HUD. Included in the settlement agreement is a repayment
      agreement that explains $8,855 as due upon execution of the settlement agreement, with the
      remaining $416,145 due in 46 monthly installments of $8,855 and a final payment of $8,815
      expected by July 1, 2020. In accordance with HUD Handbook 2000.06, REV-4, the final
      action target date will be set at July 31, 2020 (30 days from the final date on which
      payment is expected). 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.