Lender Settles Suit Alleging FHA Insurance Violations

Allison Tussey —  February 29, 2012 — Leave a comment

Flagstar Bank, F.S.B. (“Flagstar“), one of the nation’s largest savings banks and originators of mortgage loans, was the subject of a civil lawsuit, which it simultaneously settled.  The lawsuit included allegations that Flagstar improperly approved residential home mortgage loans for government insurance.

In the settlement, Flagstar admitted, acknowledged, and accepted responsibility for submitting false certifications to HUD.  The false certifications induced the Federal Housing Administration to accept loans for government insurance that were not eligible and that resulted in losses to HUD when the loans defaulted. 

Flagstar agreed to pay $132.8 million to the United States in damages and penalties under the False Claims Act and to reform its business practices.  The settlement was approved by United States District Judge Katherine B. Forrest.   

Preet Bharara, the United States Attorney for the Southern District of New York, Helen Kanovsky, General Counsel of the U.S. Department of Housing and Urban Development, and David A. Montoya, the Inspector General of HUD, announced the lawsuit and simultaneous settlement.

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Allison Tussey

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