January 04, 2006
HUD ANNOUNCES LANDMARK $41 MILLION SETTLEMENT AGAINST ABN AMRO
Settlement represents largest enforcement action in FHA's history
WASHINGTON - The Department of Housing and Urban Development, together with the Department's Office of Inspector General, the Justice Department and the Office of the Comptroller of the Currency, today announced a more than $41 million settlement against mortgage giant ABN AMRO Mortgage Group for falsifying documents in tens of thousands of loans insured by the Federal Housing Administration (FHA). This landmark agreement represents that largest monetary settlement of an enforcement action in FHA's history.
In 2003, HUD discovered underwriting deficiencies and improper conduct by an ABN employee. After the matter was brought to the company's attention, ABN launched an internal investigation and discovered that, in direct violation of FHA rules, a number of its employees falsely certified that two ABN underwriters had reviewed more than 28,000 loans prior to FHA endorsement when, in fact, they had not.
As a result, ABN has agreed to pay the U.S. Government $16.85 million and will not submit hundreds of defaulted loans to HUD, saving the FHA insurance fund an estimated $24.35 million in losses. The total value of the settlement agreement announced today is estimated to be more than $41 million.
"This settlement is the result of a lot of tireless dedication, hard work and close coordination on behalf of HUD, the Department's Inspector General and our other federal partners," said Keith E. Gottfried, HUD's General Counsel. "This action demonstrates our steadfast and enduring commitment to making sure HUD's programs are administered in accordance with the letter and intent of the law and are free from fraud and abuse."
Brian Montgomery, HUD's Assistant Secretary for Housing-Federal Housing Commissioner said, "As much as we intend to aggressively expand the FHA program to help even more families realize their American Dream and become homeowners, we will not do so at the expense of the financial soundness, integrity or reputation of the Federal Housing Administration. This settlement is evidence that we will take immediate action if our participating lenders, however large or small, fail to follow our underwriting requirements."
HUD's Inspector General Kenneth Donahue, Sr. added, " This team effort reimburses FHA and the government for, and protects it from, tens of millions of dollars in mortgage insurance losses that were caused by lax procedures during the heyday of the housing boom. Equally important, it sends the unmistakable message to the mortgage industry as a whole that the Government will not tolerate such blatant violations of FHA's underwriting requirements and other improper conduct by lenders that threaten the integrity of the FHA program and we will hold lenders responsible for such activities. The FHA insurance fund and the American taxpayer must always be protected."
Under the FHA mortgage insurance program, ABN has "direct endorsement authority" to approve FHA-insured loans, allowing the company to underwrite loans and submit them to FHA for insurance endorsement. In general, FHA requires that before a lender may submit a loan for endorsement, its underwriters must perform due diligence and make certain certifications, including that the loan meets FHA's underwriting requirements.
HUD's Office of General Counsel and HUD's Office of Inspector General determined that there were potential violations of the False Claims Act and the Program Fraud Civil Remedies Act involving more than 28,000 loans submitted to HUD with false certifications. Loans were submitted with certifications purporting to be signed by one of two underwriters when neither had, in fact, actually signed the certifications nor personally reviewed the loans to determine whether they qualified for FHA insurance.
In addition to the $16.85 million in cash payments to the Government, ABN AMRO agreed that it will not submit insurance claims on 783 defaulted loans, saving the FHA insurance fund an estimated $24.35 million in potential losses.
In connection with resolving the matter, ABN informed HUD that it has:
- Taken disciplinary action against the executives, managers and other employees responsible for the improper conduct leading to HUD's enforcement action, including the termination of several senior-level employees and the reassignment of others;
- Replaced the entire management structure of the ABN Government Loan Originations Group;
- Reorganized the entire ABN Mortgage Group;
- Placed senior executives in positions of direct authority over, and accountability for, the FHA loan program within ABN;
- Hired a new senior executive to supervise the government loan underwriters; and,
- Implemented training programs for both the ABN Government Loan Originations Group and the underwriting department on the importance of HUD certifications for FHA-insured loans.
Since 1998, HUD's Mortgagee Review Board (MRB), which oversees the performance of lenders participating in FHA insurance programs, has imposed more than $16 million in civil money penalties, and has taken 292 actions that include settlement agreements, suspensions, and withdrawals of approval against FHA lenders. The Mortgagee Review Board has obtained indemnification agreements for close to 1,500 loans, which has resulted in over $50 million in savings to HUD.
HUD's Assistant Secretary for Housing-Federal Housing Commissioner serves as the chairman of the MRB. The other HUD officials who comprise the Mortgagee Review Board are: HUD's General Counsel; the President of Ginnie Mae; HUD's Chief Financial Officer; HUD's Assistant Secretary for Administration; and, the Director of the HUD Enforcement Center. All MRB administrative actions are published in the Federal Register.
HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet and espanol.hud.gov.
NOTE: To view the settlement agreement announced today, visit HUD's website.