Flagstar pays $133M to settle mortgage fraud
Sunday, February 26, 2012
TROY, Mich. (AP) — Flagstar Bancorp Inc. has agreed to pay $133 million to settle claims its mortgage unit engaged in fraudulent lending practices.
The U.S. government said in a release Friday it filed and settled a civil lawsuit against the Troy-based holding company for Flagstar Bank. The government says the bank improperly approved residential home mortgage loans for government insurance.
“The lawsuit ... is another stark example of how certain lenders put profit ahead of responsibility by recklessly churning out mortgage loans without regard to the risk that those loans would default or the significant consequences for the individual homeowners who would inevitably default on their loans, the housing market, and in the aggregate, our nation’s economy,” U.S. Attorney Preet Bharara of the Southern District of New York said in a statement. “Flagstar has accepted responsibility for its conduct and committed to reform its business practices to ensure compliance with (federal) requirements.”
Flagstar Chief Executive Joseph Campanelli said in a release that the settlement allows the bank to move forward and officials are “pleased to have resolved this matter.”
The bank admitted to making false certifications that caused the Federal Housing Administration to accept loans for government insurance that weren’t eligible and resulted in losses to the federal Housing and Urban Development department when the loans defaulted.
Under the settlement, Flagstar agreed to pay $15 million within 30 days and pay an additional $118 million as soon as it meets certain financial benchmarks. The government said the payments represent the maximum that Flagstar can pay.
Flagstar also must create a training program for all employees involved with FHA loans, and its participation in the federal loan program will be monitored by a third party at the bank’s expense.
The bank said it expects the settlement terms will increase its fourth quarter net loss by between $26 million and $34 million and will announce its revised earnings for the period in the near future.
The government said the complaint is the fourth suit filed by Bharara’s office during the past nine months alleging “reckless or fraudulent lending practices” by home mortgage lenders. The government last week sued and settled a $158 million case with Citibank subsidiary CitiMortgage Inc.
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