Investing.com -- The U.S. Department of Justice and Walter Investment Management Corporation agreed to terms on a $29.6 million settlement on Friday to resolve allegations that the corporation violated terms of the False Claims Act in connection with the servicing of reverse mortgage loans.
The case revolves around allegations that Walter Investment Management (WIMC) submitted claims to the Department of Housing and Urban Development for the reimbursement of unlawful referral fees by falsely reporting them as lawful sales commissions. WIMC, through two of its subsidiaries, allegedly violated the False Claims Act with its participation in HUD's Home Equity Conversion Mortgage program, according to court filings. HUD maintains the program as a way of insuring large pools of reverse mortgages it receives.
Reverse mortgages, which are available to elderly citizens ages 62 or older, are regulated by the Federal Government in order to prevent predatory lenders from ensnaring vulnerable seniors. The program allows a homeowner owner to obtain the entire amount of a home loan at settlement with no restrictions. However, the accumulated debt and interest on a reverse mortgage are due when the mortgage holder moves, sells the home or passes away. A standard grace period for a reverse mortgage is around six months.
From a period of August, 2009 until March, 2015, a subsidiary of WIMC allegedly submitted false claims for interest payments in which it was not entitled to, federal prosecutors alleged. On numerous occasions during the seven-year period, the subsidiary failed to properly disclose that it missed certain deadlines, according to the Department of Justice. As such, the subsidiary, Reverse Mortgage Solutions (RMS), was not entitled to the interest payments. HUD requires lenders and their servicers to obtain appraisals within 30 days of the loan's due date to help the department determine the proper market value of the property.
“The Department of Justice is committed to ensuring that those who service HUD-insured reverse mortgages are held accountable for their knowing failure to comply with important HUD requirements,” Assistant attorney general Benjamin Mizer said in a statement. “Schemes such as these undermine an important tool available to older Americans who wish to use a HUD-insured reverse mortgage loan to age in place.”
In addition, WIMC through its subsidiaries, allegedly submitted false claims to HUD by reporting unlawful referral fees as lawful commissions. RMS allegedly used so-called "straw companies," to liquidate a host of foreclosed properties, which in turn split commissions of up to 6% following the sale. The straw companies, according to filings, deducted a 1% referral fee, then returned the remaining amount to the subsidiary through an illegal kickback. HUD does not provide reimbursements to lenders for commissions for foreclosed properties that are liquidated.
“This settlement represents a significant milestone in our office’s long standing campaign against mortgage fraud,” U.S. Attorney Lee Bentley III said in a statement. “HUD’s lending programs are vital to the economic well-being of some our district’s most vulnerable residents and we are committed to holding servicers and lenders to the high standards required by these programs.”