by Ben Vernia | September 9th, 2015
On September 4, the Department of Justice announced that Walter Investment Management Corp., based in Tampa, Florida, had agreed to pay $29.63 million to settle a whistleblower’s allegations that the company’s reverse mortgage subsidiary had submitted false claims for debenture interest. According to DOJ’s press release:
The Justice Department announced today that Walter Investment Management Corp. (WIMC) has agreed to pay $29.63 million to resolve allegations that WIMC, through its subsidiaries, Reverse Mortgage Solution Inc. (RMS), REO Management Solutions LLC and RMS Asset Management Solutions LLC, violated the False Claims Act in connection with their participation in the Department of Housing and Urban Development’s (HUD’s) Home Equity Conversion Mortgages (HECM) program, which insures “reverse” mortgage loans. WIMC, through subsidiaries such as RMS and Green Tree Servicing LLC, provides business support to the residential mortgage industry, including servicing of reverse or forward mortgages on behalf of major financial institutions.
* * *
Reverse mortgage loans allow elderly people to access the equity in their homes. To encourage reverse mortgage loans, HUD insures such loans through a program administered by HUD’s Federal Housing Administration (FHA). Under HUD’s program, a loan becomes due and payable when the home is sold or vacant for more than 12 months or upon the death of the homeowner, whichever comes first. The lender is repaid the amount of the loan, including the costs of servicing the loan and interest that accrues, after a loan becomes due and payable. HUD will reimburse a lender that is unable to recoup the full amount of the loan. In order to claim recoupment, the servicer is required to meet a number of regulatory requirements and deadlines. Failure to meet these requirements and deadlines could result in denial of the insurance claim.
The government alleged that, from August 2009 to March 2015, RMS, with the knowledge and support of its corporate parent, WIMC, submitted false claims for debenture interest from HUD by failing to properly disclose that it had not met certain deadlines and, therefore, was not entitled to such interest payments. In order to obtain such interest, HUD requires lenders and their servicers to obtain appraisals within 30 days of the loan becoming due and payable. The significance of the 30-day appraisal requirement is, among other things, to establish a mutual understanding between the lender and HUD as to the market value of the property so that a decision can be made as to whether to proceed with foreclosure, engage in a workout with the lender or deal with estate rights issues.
The government also alleged that from July 2010 to October 2014, WIMC, through its subsidiaries, submitted false claims to HUD for the reimbursement of unlawful referral fees by falsely representing them to be lawful sales commissions. As part of an insurance claim, HUD will reimburse lenders or their servicers for sales commissions paid to real estate agents as part of the liquidation of foreclosed properties. HUD will not, however, reimburse lenders or their servicers for fees paid for the referral of liquidation business. According to the government, RMS often used straw companies to liquidate foreclosed properties. Upon sale of the foreclosed property, the straw companies split the six-percent sales commissions: the real estate agents shared a five-percent sales commission and the companies kept a one-percent referral fee. These straw companies, in turn, deducted a small fee from the one-percent referral fee and kicked the remainder back to RMS. Nonetheless, RMS submitted insurance claims to HUD that included payment for the full six-percent sales commission, when, in fact, the payment included a prohibited referral fee.
* * *
The Government announced that the qui tam relator, a former executive of the subsidiary, will receive $5.15 million (a 17.4% share) of the settlement.
