To Settle FHA False Claims Act Lawsuit With The DOJ, First Tennessee Bank Admits Wrong Doing

The Department of Justice announced Monday that First Tennessee Bank, the regional bank for First Horizon National will pay $212.5 million to resolve allegations that it violated the False Claims Act Lawsuit filed by the Department of Justice by “knowingly originating and underwriting mortgage loans insured by the Federal Housing Administration that did not meet applicable requirements,”

The claims are related to First Tennessee’s underwriting and origination of FHA-insured mortgage loans from Jan. 2006 through Dec. 2008.

As part of the settlement, First Tennessee admitted that from January 2006 through October 2008, it “repeatedly certified” for FHA insurance mortgage loans that did not meet HUD underwriting requirements.

The Depart of Justice claimed that as First Tennessee increased its origination of FHA mortgages in late 2007, the quality of First Tennessee’s quality control decreased dramatically.

In 2008, First Tennessee became aware that a substantial percentage of its FHA originated loans were not eligible for FHA mortgage insurance due to its own

“These findings were routinely shared with First Tennessee’s senior managers,” the DOJ said in a release. “Despite internally acknowledging that hundreds of its FHA mortgages had material deficiencies, and despite its obligation to self-report findings of material violations of FHA requirements, First Tennessee failed to report even a single deficient mortgage to FHA. First Tennessee’s conduct caused FHA to insure hundreds of loans that were not eligible for insurance and, as a result, FHA suffered substantial losses when it later paid insurance claims on those loans.”

First Tennessee has little FHA oversight because the bank participated in the FHA insurance program as a Direct Endorsement Lender. As a DEL, First Tennessee had the authority to originate, underwrite and endorse mortgages for FHA insurance.

If a DEL such as First Tennessee 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 deficiency created by the foreclosure.

Under the DEL program, neither the FHA nor HUD reviews a loan before it is endorsed for FHA insurance, the DOJ said.

Principal Deputy Assistant Attorney General Benjamin Mizer of the Justice Department’s Civil Division told Housingwire, “First Tennessee’s reckless underwriting has resulted in significant losses of federal funds and was precisely the type of conduct that caused the financial crisis and housing market downturn. We will continue to hold accountable lenders who put profits before both their legal obligations and their customers, and restore wrongfully claimed funds to FHA and the treasury.”

This isn’t the first time First Tennessee, parent MetLife Home Loans found themselves facing a Fair Claims Lawsuit by the DOJ. Earlier this year Metlife had to pay $123.5 million settlement to the DOJ for similar allegations. According to the DOJ, that settlement resolved False Claims Act charges against MetLife Home Loans stemming from its FHA originations after it acquired First Horizon Home Loans in Aug. 2008.

“Our investigation found that First Tennessee caused FHA to pay claims on loans that the bank never should have approved and insured in the first place,” said HUD Inspector General David Montoya. “This settlement reinforces my commitment to combat fraud in the origination of single family mortgages insured by the FHA and makes certain that only qualified, creditworthy borrowers who can repay their mortgages are approved under the FHA program.”