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April 16, 2013 Mortgage Fraud

Mortgage Fraud Lawsuit Filed Against Golden First Mortgage Corporation

A civil mortgage fraud lawsuit filed in Manhattan this week accuses Golden First Mortgage Corporation and its owner, David Movtady, of participating in a fraudulent loan certification scheme that resulted in at least $12 million of losses through participation in the Federal Housing Administration (FHA) Direct Endorsement Lender Program. Golden First is charged with violating the federal False Claims Act, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 and committing negligence/breach of fiduciary duty.

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Golden First Mortgage Fraud Allegations

According to the Department of Justice (DOJ), Golden First Mortgage Corporation and David Movtady “repeatedly lied” to the government between 2002 and 2010 in order to win Federal Housing Administration insurance for its home loans, effectively tricking the federal government into insuring bad home loans that ended up costing taxpayers millions once the loans inevitably defaulted.

Golden First Mortgage is accused of mortgage fraud via submitting multiple false certifications to the government that made it appear each loan had undergone the proper scrutiny, passing each compliance rule of the U.S. Department of Housing and Urban Development (HUD).

Instead of making sure each loan was eligible, Golden First Mortgage allegedly adopted a “quantity over quality” mentality. The company paid illegal kickbacks to their employees in order to speed up the process of loan approvals and only used three employees to close around 100 to 200 loans a month, making a proper evaluation process next to impossible.

Golden First Mortgage and the Direct Endorsement Lender Program

Golden First Mortgage participated in the Direct Endorsement Lender program from 1989 to 2010. Neither HUD nor the FHA reviews a home loan before it is granted approval for insurance; they simply trust that the lenders participating in the program will abide by the mandatory guidelines.

Within those program rules, Direct Endorsement Lenders are supposed to certify mortgages and maintain a quality control program to prevent or correct underwriting deficiencies.

Quality control program requirements for Direct Endorsement Lenders include:

  • maintaining a program independent of the lender’s business units;
  • disclosing to HUD, within 60 days of initial discovery, all loans containing evidence of fraud or other serious underwriting problems; and
  • conducting a full review of all loans that go into default within the first six payments

Both Golden First Mortgage and Movtady failed to comply with each of these basic requirements. As a Direct Endorsement Lender, Golden First Mortgage was able to originate, underwrite, and certify their own mortgages for FHA insurance. If Golden First Mortgage approved a mortgage loan for FHA insurance and the loan defaulted, they could then submit an insurance claim to HUD for all the costs associated with the defaulted loan, leaving HUD to pay the bill.

“The alleged utter disregard and willful failure to abide by the standards set by the FHA make this one of the worst examples of mortgage fraud that I have seen since becoming inspector general,” said HUD Inspector General David A. Montoya.

Additional Mortgage Fraud Allegations

In addition to the above, Golden First Mortgage and Movtady committed additional mortgage fraud by making a regular practice of originating and underwriting FHA loans that never should have been approved. The company sent in certifications stating that over a thousand FHA loans were eligible for FHA insurance.

According to the DOJ, Golden First Mortgage and Movtady were both aware of the fact that the company’s underwriters consistently failed to perform a thorough check on the loans, failed to verify that the borrower could make the payments on the mortgage, and repeatedly certified loans that contained serious problems and errors with HUD’s underwriting standards.

The government said this led to an “extraordinarily high” default rate that climbed to 60 percent for the $707 million of loans made since 2002. In fact, in a sampling of the loans that Golden First Mortgage wrote from 2007 to 2008, each sample contained massive underwriting violations.

“Golden First and David Movtady churned out bad loans and lied about their compliance with HUD requirements, leaving taxpayers on the hook for millions of dollars when the loans inevitably defaulted,” U.S. Attorney Preet Bharara in Manhattan said in a statement.

According to the DOJ, the FHA has paid more than $12.3 million toward the insurance claims of Golden First Mortgage loans since July 2007, and they expect that number to increase exponentially.

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