Walter Investment Management Corporation Settles Mortgage Fraud Case for $29 Million

In yet another mortgage fraud case, Walter Investment Management Corporation (Walter Investment) has agreed to pay over $29 million to resolve allegations it falsely certified residential home mortgages under the Department of Housing and Urban Development’s (HUD) Home Equity Conversion Mortgage (HECM)^[1] program. The alleged scheme was uncovered following a whistleblower lawsuit filed by a former executive of Walter Investment. The whistleblower, in exchange for his willingness to expose the fraud, will receive $5.15 million under the False Claims Act’s qui tam provisions.

Compliance with the HECM program

The False Claims Act is triggered any time an entity knowingly submits a claim^[2]for reimbursement or otherwise causes the government to spend taxpayer dollars on non-existent or exaggerated charges. While the two most common areas of False Claims Act liability involve the healthcare and defense industries, mortgage fraud is another area of growing concern for federal and state regulators.

The HECM program involves the sale of reverse mortgage products to senior citizens. Under the terms of a reverse mortgage, homeowners who own their property outright may withdraw some of the equity in their home for cash payments, which are often used to fund retirement. Unlike a traditional home equity loan, however, borrowers using a HUD-backed HECM reverse mortgage need not repay the balance until they no longer use the home for residential purposes, either due to death or relocation.

In order to facilitate the goals of the HECM program and ensure compliance with federal guidelines, HUD works with several reverse mortgage lenders and relies on those lenders to ensure borrowers meet loan criteria and the terms of the reverse mortgage are compliant with HUD guidelines. If the lending institution fails to properly certify reverse mortgage transactions, it could face significant fines and penalties under the False Claims Act.

Alleged misconduct of Walter Investment

According to the Department of Justice,^[3] Walter Investment engaged in an elaborate scheme to pad profits and offer incentives to various individuals involved in the reverse mortgage transaction. As part of the government’s reverse mortgage program, it offers certified lending institutions a reimbursement on debenture interest, which is interest assessed on large, long-term loans between corporations or, as here, between a corporation and the federal government. The term is often used interchangeably with “note” or “bond,” and essentially refers to the instrument creating the underlying debt.

Central to its allegations, the DOJ contends that Walter Investments submitted claims for debenture interest reimbursements to HUD despite not meeting HUD’s regulations for such reimbursements. More specifically, HUD requires^[4]lenders to submit claims for debenture interest reimbursements within 30 to 60 days from the date of eligibility, depending on certain ancillary criteria. Here, Walter Investments is alleged to have submitted thousands of claims for debenture interest repayments despite missing these deadlines.

In addition, Walter Investments is alleged to have offered referral fees to various real estate agents – which is prohibited under HECM guidelines – and reclassified these fees as lawful sales commissions. More specifically, Walter Investments set up several sham companies to liquidate foreclosed properties, and then offered a six percent sales commission upon the resale of the properties to the real estate agents involved. On its paperwork to HUD, Walter Investments referred to this fee as a lawful commission payment, thereby requiring HUD to pay a referral fee with taxpayer dollars.

According to a statement released by HUD, “This is a significant settlement concerning FHA’s reverse mortgage program, which is designed to benefit America’s seniors….We’re pleased that [Walter] agreed to accept financial responsibility for these violations.”

Contact Berger Montague today

If you are aware of mortgage fraud occurring at your place of employment or involving your personal lender, please contact Berger Montague today.

^[1] Frequently Asked Questions about HUD’s Reverse Mortgages. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten

^[2]Oliva, Jason, “Walter Pays $29 Million to Settle Reverse Mortgage False Claims Allegations.” September 4, 2015. http://reversemortgagedaily.com/2015/09/04/walter-pays-29-million-to-settle-reverse-mortgage-false-claims-allegations/