Indian Land, South Carolina-based lender Movement Mortgage has agreed to pay $23.75 million to settle allegations that it improperly originated and underwrote mortgages insured by the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) programs.
The Department of Justice’s settlement announcement on Thursday resolves a whistleblower lawsuit filed in 2018 by former underwriter Jennifer McNeil and former quality control team lead Ledell Javon Wilson in a federal court in the Northern District of New York under provisions of the False Claims Act.
In a statement, Movement said, “The U.S. Attorney noted that we ‘took significant measures to stop the practices, both before and after being notified of the United States’ investigation,’ and that the settlement is ‘not an admission of any legal liability.’
According to the company’s statement, “The relevant loans, some dating back 15 years, make up less than a half percent of our total federal loans originated during this time frame. We believe we have addressed these problems and agreed to the settlement so we can move on and continue to focus on our mission.”
Like its peers, Movement has the authority to originate and underwrite loans without first having the government review them. If the borrowers default, they may submit a claim to the government for certain losses. Therefore, lenders must follow FHA and VA rules to ensure only loans that meet credit and underwriting criteria are insured or guaranteed by the government.
Per the whistleblowers’ lawsuit, Movement’s inexperienced underwriting staff routinely made basic errors related to property calculating borrowers’ income, debts, and assets. A former quality control underwriter estimated that around 20% of government loan files audited by Movement after endorsement had material deficiencies, the lawsuit claims.
“Lenders participating in mortgage programs backed by taxpayers must follow the rules designed to protect both program integrity and homeowners,” U.S. Attorney Carla Freedman said in a statement. “Today’s settlement holds Movement Mortgage accountable for its past violations while acknowledging that it has taken steps to strengthen its internal controls to ensure future compliance with FHA and VA requirements.”
Movement admitted it sent “a material percentage of loans” that did not meet the requirements to be eligible for the programs – and that the FHA and VA programs would not have insured or guaranteed these loans but for its submission of false certifications, the U.S. Attorney’s Office said.
The company also confirmed that it failed to adhere to the government’s self-reporting requirements.
Movement will pay the two former employees $4 million for their share of the settlement proceeds, and the rest will go to the government. The law permits a private party to file a suit on behalf of the government and receive a portion of any recovery.
“Through this settlement, Movement Mortgage is accepting responsibility for its past actions by fully repaying the FHA insurance fund for its losses on defaulted loans that should not have been issued,” Damon Smith, General Counsel for the Department of Housing and Urban Development (HUD), said in a statement. FHA is part of the HUD.
The covered conduct stretched back as far as July 2008, including a period of rapid expansion by the company, per the U.S Attorney’s office. However, the settlement agreement indicates that since 2018, Movement implemented measures to improve its operational and quality controls.
Nelson Thomas, a founder of Thomas & Solomon LLP representing the whistleblowers, said too often individuals – especially underwriters and quality control employees – feel powerless in the mortgage industry where “there is typically an expectation that fraud will occur.”
“Today’s settlement is proof that individuals like Jennifer and Javon can make a difference in stopping this fraud. For each of them, it was never about the whistleblower award; it was just about doing the right thing and trying to get things to change.”
Movement case follows settlements by the Department of Justice with Academy Mortgage in December 2022 for $38.5 million and Guild Mortgage in October 2020 for $24.9 million.