Mortgage Fraud Allegations at ABN Amro Leads to $41 Million Settlement

The Department of Justice (DOJ) previously announced a settlement reached with a Michigan-based mortgage lender in a False Claims Act case. ABN Amro Mortgage Group Inc., a subsidiary of LaSalle Bank Midwest, agreed to pay the government $41 million to resolve allegations that it falsified over 28,000 federally insured mortgages. According to the DOJ, ABN submitted false mortgage certifications to the United States Department of Housing and Urban Development (HUD). In addition, 229 of the falsely certified mortgages ended in default status, resulting in HUD losses of $6.25 million.

ABN is one of the top 10 mortgage lenders in the United States. At the time of the DOJ’s announcement, the $41 million settlement payment was one of the largest ever obtained by the United States Attorney’s Office of the Eastern District of Michigan under the federal False Claims Act. The sum ABN was ordered to pay included a $16.85 million cash payment and $24.35 million in waived federally-backed insurance claims on 783 defaulted mortgages.

Details of the Mortgage Fraud

The mortgage loans in this case were each insured by the Federal Housing Administration (FHA). Under guidelines of the FHA mortgage insurance program, ABN was granted the authority to independently review and approve FHA-insured loans. Approximately 3,360 lenders, including ABN, have “direct endorsement authority” from HUD, meaning the lender is given the right to certify that the loan meets FHA standards. This allowed ABN to originate mortgage loans, then submit them to the FHA for insurance endorsement. According to the federal guidelines, the FHA requires a mortgage lender to perform “due diligence” before they submit the loan for endorsement. Due diligence, in this case, would require the lender to thoroughly evaluate each applicant, paying close attention to things like past/present financial history and overall ability to repay the loan. The certifications submitted to the FHA must also meet the Administration’s underwriting requirements.

During 2003, a HUD investigation uncovered several underwriting discrepancies and improper conduct on the part of one ABN employee. After HUD revealed their findings, ABN launched an internal investigation of its own. Through this internal probe, ABN was able to discover that mortgage fraud was being committed not by one employee, but by multiple numbers of ABN employees.

ABN discovered that a large number of its employees were knowingly falsifying federally-backed mortgage loans, which is in direct violation of FHA rules. The group of employees fraudulently certified that one of two specific ABN underwriters had thoroughly reviewed the 28,097 loans in question before submitting them to the FHA for endorsement. In reality, neither of the two underwriters had signed the mortgage loan certifications or personally reviewed them in order to determine if they qualified for FHA insurance.

Results of the Mortgage Fraud Scheme

According to HUD’s Office of General Counsel and HUD’s Office of Inspector General, an investigation revealed ABN had violated the federal False Claims Act and the Program Fraud Civil Remedies Act. The FHA’s mortgage loan qualification process is designed, in large part, to keep the government from holding the bill on bad loans. Due to the fact that ABN underwriters failed to review and evaluate the loan documents properly, the FHA was ultimately responsible for each mortgage loan that defaulted. As a result of the False Claims Act settlement, ABN will not be eligible to submit 783 defaulted loans for insurance repayment by the government, which will save the FHA insurance fund more than $24 million in total losses.

Mortgage Fraud and the False Claims Act

The FHA was created in 1934 during the Great Depression in an effort to help home buyers purchase or refinance homes when banks tightened credit. FHA loans are now a major source of mortgage-financing for low and moderate-income people, as the loans permit buyers to make affordable low down payments. When mortgage loans are federally insured, lenders are expected to comply with all government guidelines. When they do not follow the regulations, as in the case of ABN, the violations fall under the federal False Claims Act.

The False Claims Act is the government’s main tool for addressing fraud associated with federal money or property. With first-hand knowledge of fraud, whistleblowers can consult with a False Claims Act attorney and then pursue their own qui tam action. Recent amendments to the False Claims Act strengthened and increased incentives for qui tam whistleblowers filing lawsuits on behalf of the government. The amendments have led to more investigations and greater recoveries for whistleblowers.

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