In the wake of the 2008 financial crisis, which was primarily fueled by the housing bubble burst, many less-than-lawful residential home loan lenders have faced serious civil and criminal penalties for participating in shoddy underwriting practices, robo-signing, lax credit reviews, and outright fraud. Over the past several years, the U.S. government has targeted many mega-banking institutions, including Wells Fargo and Bank of America, for pushing through loan applications that should have never been approved. Upon default, these government-backed mortgages triggered the payment of hundreds of millions of dollars in mortgage insurance payouts from the federal government – all for loans that should never have been approved.
In the latest round of settlements related to mortgage fraud, MetLife Home Loans, LLC has agreed to pay $125 million to settle allegations it abused its position as a Direct Endorsement lender by approving loans without following proper underwriting guidelines, costing the Department of Housing and Urban Development millions of dollars in insurance payouts upon the inevitable default of these sub-prime home loans.
Details of the allegations against MetLife
The federal government offers mortgage insurance to residential homeowners who qualify. Under the current structure, certain lending institutions are permitted to perform all the origination and underwriting requirements set forth by the federal government for eligibility, without the need for government oversight or review. In theory, the government entrusts these specific lenders with the task of ensuring applicants for mortgage loans have the requisite income, credit background, and creditworthiness to qualify for a loan.
As one of these lenders – known as a Direct Endorsement lender – MetLife was entrusted with the responsibility of properly reviewing loan applicants for eligibility and quality. However, as the Department of Justice’s investigation revealed, loans made between 2008 and 2012 did not meet regulatory standards, including government requirements for thorough underwriting, review of income, and credit histories. What’s more, the investigation found that MetLife knew of these issues and continued to make the loans nonetheless. In fact, MetLife’s own internal quality controls found that up to 60 percent of its home loans contained “material” or “significant” issues. As well, executives are alleged to have misrepresented the number of loans with “significant” deficiencies by re-categorizing the loans as containing a “moderate” number of issues. Embarrassingly, one executive email exchange contained the following rhetoric:
“Why say Significant when it feels so Good to say MODERATE.”
In total, MetLife was responsible for approving 1,097 loans during the period in question with a significant number of deficiencies.
In a statement by the Department of Housing and Urban Development:
“The settlement announced today is the culmination of two years of work by HUD OIG and our continued efforts to identify and properly respond to instances of fraud against HUD’s mortgage insurance program….We appreciate that MetLife Bank has accepted responsibility for its actions and is settling with the government….We want to thank the Department of Justice and HUD’s Office of Inspector General for all of their efforts in helping us make this settlement a reality. This settlement with MetLife Bank underscores our consistent message that HUD takes compliance with its requirements seriously.”
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