BOSTON – (RealEstateRama) — The U.S. Attorney’s Office has reached a $1,025,000 civil settlement with First American Mortgage Trust, d/b/a NXTLoan.com, a small mortgage lender based in Brighton, Mass., and its founder and CEO, Barry S. Polack, in connection with allegations that they submitted false insurance claims on mortgages insured by the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA).
The settlement resolves allegations that First American, at Polack’s direction, ignored FHA’s due diligence requirements and falsely certified that First American loans qualified for FHA insurance when they did not. The settlement also resolves allegations that Polack falsely certified to FHA that First American complied with quality control requirements and failed to report known loan defects.
“This settlement is another example of the government’s efforts to hold mortgage lenders and individuals accountable for fraudulent underwriting of government-insured mortgages,” said United States Attorney Carmen M. Ortiz. “In order to obtain HUD insurance, First American certified that its loans complied with HUD’s quality standards while ignoring defects that made the loans ineligible for FHA insurance.”
“This settlement agreement resolves allegations that First American Mortgage Trust, entrusted by American taxpayers to comply with FHA regulations, failed to conform with certain FHA requirements in connection with submission of insurance claims insured by FHA,” said Inspector General David A. Montoya for HUD. “This settlement demonstrates a continued commitment to address business practices that potentially harm the FHA program and its participants.”
“We will not tolerate the reckless disregard for FHA’s underwriting standards,” said Tonya Robinson, Acting General Counsel for the U.S. Department of Housing and Urban Development. “FHA’s insurance fund, and the millions of families who rely upon it, depend on the good faith and integrity of the mortgage lenders with whom we do business. We will continue to work aggressively to weed out participants in the FHA program who purposefully fail to meet our most basic requirements.”
“This settlement is the latest example of our continued work of holding FHA Direct Endorsement Lenders accountable for adhering to strict underwriting standards,” said Christina Scaringi, Special Agent in Charge of the U.S. Department of Housing and Urban Development Office of Inspector General, Northeast Regional Office. “I am thankful for the cooperation between my office and the Department of Justice and am especially appreciative of the U.S. Attorney’s Office’s perseverance in bringing this matter to a fair and just resolution.”
First American and Polack participated as a direct endorsement lender (DEL) in the FHA insurance program. A DEL has the authority to originate, underwrite and approve mortgage loans for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance; to maintain a quality control program that can prevent and correct deficiencies in their underwriting practices; and to self-report any deficient loans identified by their quality control program.
As part of the settlement, First American and Polack admitted that on certain occasions between 2005 and 2011, First American did not conduct the due diligence required by FHA, and as a result, some First American loans did not meet FHA’s quality standards and were ineligible for FHA insurance. Nevertheless, First American underwriters, supervised by Polack, certified those loans for FHA insurance. When those loans defaulted, FHA paid insurance claims on loans that never should have been FHA insured. In addition, First American, at times, did not conduct post-closing loan audits, even though Polack certified annually to FHA that First American had complied with FHA underwriting requirements. When First American began conducting audits on closed loans, First American and Polack did not report to FHA any serious issues identified by the audits.
The settlement took into consideration First American’s and Polack’s financial circumstances and recent improvements to First American’s business practices.
This matter was investigated by the U.S. Department of Housing and Urban Development’s Office of the Inspector General and Office of General Counsel. It was handled by Assistant U.S. Attorney Brian LaMacchia of Ortiz’s Civil Division.