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PHH Agrees to Pay Over $74 Million to Resolve Alleged False Claims Act Liability Arising from Mortgage Lending

AUG 8, 2017 | REPUBLISHED BY LIT: MAR 9, 2023

PHH Corp. PHH Mortgage Corp. and PHH Home Loans (collectively, PHH) have agreed to pay the United States $74,453,802 to resolve allegations that they violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA), guaranteed by the United States Department of Veterans Affairs (VA), and purchased by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) that did not meet applicable requirements, the Justice Department announced today.

PHH is headquartered in Mount Laurel, New Jersey, and PHH Home Loans operates in Edina, Minnesota.

PHH has agreed to pay $65 million to resolve the FHA allegations and $9.45 million to resolve the VA and FHFA allegations.

“Government mortgage programs designed to assist homeowners — including programs offered by the FHA, VA, Fannie Mae and Freddie Mac — depend on lenders to approve only eligible loans,” said Acting Assistant Attorney General Chad A. Readler, head of the Justice Department’s Civil Division. “The Department has and will continue to hold accountable lenders that knowingly cause the government to guarantee, insure, or purchase loans that are materially deficient and put both the homeowner and the taxpayers at risk.”

“PHH submitted defective loans for government insurance, and homeowners and taxpayers paid the price. This significant resolution helps rectify the misconduct by returning more than $74 million in wrongfully claimed funds to the government,”

said Acting U.S. Attorney for the District of Minnesota Gregory Brooker.

“I commend the efforts of this Office’s Civil Division in reaching a successful resolution.”

“This settlement requires PHH to pay back to the taxpayers of the United States millions of dollars in loans that never should have been made,”

Acting U.S. Attorney William E. Fitzpatrick for the District of New Jersey said.

“By failing to ensure the creditworthiness of borrowers and otherwise failing to make sure the loans met HUD underwriting requirements, loans were insured by FHA that should not have been.”

“By failing to comply with FHA regulations, PHH put taxpayers and borrowers at risk of sustaining significant financial losses,”

stated Acting U.S. Attorney Benjamin G. Greenberg.

“This case and the resulting $75 million dollar settlement demonstrate that U.S. Attorney’s Offices and our investigative partners across the country are committed to holding lenders accountable who knowingly submit unqualified loans and compromise needed governmental programs.”

“For government mortgage programs to assist homeowners but not take on ill-advised risk, all participants in the mortgage lending process must provide true and complete information,”

stated Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York.

“Today’s settlement with PHH demonstrates our continuing commitment to requiring such integrity in the process.”

The settlements announced today resolve allegations that PHH failed to comply with certain FHA, VA, Fannie Mae and Freddie Mac origination, underwriting, and quality control requirements.

Since at least January 2006, PHH has participated as a Direct Endorsement lender (DEL) in the FHA insurance program. A DEL has the authority to originate, underwrite, and endorse mortgages for FHA insurance.

If a DEL 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 losses resulting from the defaulted loan.

Under the DEL program, the FHA does not review a loan before it is endorsed for FHA insurance for compliance with FHA’s credit and eligibility standards, but instead relies on the efforts of the DEL to verify compliance.

DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance.

As part of the settlement, PHH admitted to the following facts concerning the FHA loans:

Between Jan. 1, 2006, and Dec. 31, 2011, it certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements and did not adhere to FHA’s self-reporting requirements. Examples of loan defects that PHH admitted resulted in loans being ineligible for FHA mortgage insurance included:

Failing to document the borrowers’ creditworthiness, including paystubs, verification of employment, proper credit reports, and verification of the borrowers’ earnest money deposit and funds to close.

Failing to document the borrower’s claimed net equity in a prior residence or obtain documentation showing that the borrower had paid off significant debts.

Including these debts in the borrower’s liabilities resulted in the borrower exceeding HUD’s debt-to-income ratio requirements for FHA-insured loans.

Insuring a loan for FHA mortgage insurance even though the borrower did not meet HUD’s minimum statutory investment for the loan.

In 2007, PHH audited a targeted sample of government loans for closing or pre-insuring requirements and found that its “percent accurate” did not exceed 50 percent during 2007. Since at least 2006, HUD has required self-reporting of material violations of FHA requirements.

However, between Jan. 1, 2006, and Dec. 31, 2011, PHH Home Loans did not self-report any loans to HUD; rather, PHH Home Loans did not self-report any loans to HUD until 2013, after the United States commenced its investigation resulting in this settlement.

As a result of PHH’s conduct and omissions, PHH admitted, HUD insured loans endorsed by PHH that were not eligible for FHA mortgage insurance under the DEL program, and that HUD would not otherwise have insured. It admitted that HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

In addition, from at least 2005 to 2012, PHH was a VA approved lender, originating and underwriting mortgage loans and obtaining VA loan guarantees. The VA helps Servicemembers, Veterans, and eligible surviving spouses become homeowners by guaranteeing a portion of home loans.

VA home loans are provided by certain pre-approved private lenders, including banks and mortgage companies.

By guaranteeing a portion of the loan, the VA enables the lender to provide Servicemembers, Veterans, and eligible surviving spouses with loan terms that are more favorable than would otherwise be available in the marketplace.

In order to qualify for a VA guarantee, borrowers must comply with VA loan requirements.

The settlement resolves the United States’ claims and potential claims that PHH originated loans that it submitted for guarantee by the VA that did not meet the VA’s requirements.

Also from at least 2009 to 2013, PHH sold mortgage loans to Fannie Mae and Freddie Mac.

Congress created the two entities to provide stability and liquidity in the secondary housing market and established the Federal Housing Finance Agency (“FHFA”) to supervise, regulate, and oversee Fannie Mae and Freddie Mac, as well as the Federal Home Loan Bank System.

Since 2008, in response to the substantial deterioration in the housing markets that severely damaged Fannie Mae and Freddie Mac’s financial condition, Fannie Mae and Freddie Mac have been operating under a government conservatorship.

The settlement resolves the United States’ contentions that PHH originated and sold loans to the Freddie Mac and Fannie Mae that did not meet their requirements.

“This case demonstrates HUD’s resolve in protecting the integrity of its mortgage insurance programs for the benefit of all Americans, and in particular, first time homebuyers,” said Dane Narode, HUD’s Associate General Counsel for Program Enforcement.

“We are gratified that PHH has accepted responsibility for its actions.”

“This settlement resolves allegations of reckless origination and underwriting of VA guaranteed mortgage loans,”

said Michael J. Missal, Inspector General, for the Office of Inspector General for the Department of Veterans Affairs (VA OIG).

“It sends a clear message that the VA OIG will aggressively protect the integrity of this crucial program which helps so many of our veterans buy, build, or repair their homes. I would also like to thank the U.S. Attorney’s Offices for partnering with us to achieve this significant result.”

Some of the allegations resolved by these settlements included in a whistleblower lawsuit filed under the False Claims Act by a former employee of PHH, Mary Bozzelli against PHH Corp. and PHH Mortgage Corp.

Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery.

Ms. Bozzelli will receive $9,067,377.33 from the settlements.

The settlements were the result of joint investigations conducted by HUD, the HUD Office of Inspector General, the Veterans Administration’s Office of Inspector General, the FHFA Office of Inspector General, the Department of Justice’s Civil Division, and the U.S. Attorney’s Offices for the District of Minnesota, District of New Jersey, Southern District of Florida, and Eastern District of New York.

The qui tam action is captioned United States ex rel. Mary Bozzelli v. PHH Mortgage Corporation and PHH Corporation, 13-cv-3084 (E.D.N.Y.).

The claims asserted against PHH are allegations only, and there has been no determination of liability.

Attachment(s):

Download Settlement Agreement EDNY
Download Settlement Agreement MN

United States ex rel. Mary Bozzelli v. PHH Mortgage Corporation and PHH Corporation, 13-cv-3084 (E.D.N.Y.)

SETTLEMENT AGREEMENT

This Settlement Agreement (“Agreement”) is entered into among the United States of America, acting through the United States Department of Justice and on behalf of the Department of Housing and Urban Development (collectively the “United States”), PHH Corporation, PHH Mortgage Corporation (“PHHMC”), and PHH Home Loans, LLC (“PHHHL”) (collectively “PHH”), and Mary Bozzelli (“Relator”) (together “the Parties”), through their authorized representatives.

RECITALS

A.                 Between January 1, 2006 and December 31, 2011, PHHMC was a Direct Endorsement Lender approved by the Federal Housing Administration (“FHA”). Between May 9, 2006 and December 31, 2011, PHHHL was a Direct Endorsement Lender approved by the FHA. PHH has its principal place of business in Mount Laurel, New Jersey.

B.                 On May 28, 2013, Relator filed a qui tam action in the United States District Court for the Eastern District of New York captioned United States ex rel. Mary Bozzelli

v. PHH Mortgage Corporation and PHH Corporation (E.D.N.Y.), 13-cv-3084, pursuant to the qui tam provisions of the False Claims Act, 31 U.S.C. § 3730(b) (“the Civil Action”). Relator brought the Civil Action against PHHMC and PHH Corporation. The Civil Action did not name PHHHL as a defendant.

C.                 PHH agrees that it engaged in certain conduct related to FHA-insured mortgages, as set forth in Attachment A, in connection with PHHMC’s and PHHHL’s origination, underwriting, endorsement, and quality control of single-family residential mortgage loans, excluding origination and/or underwriting of Home Equity Conversion Mortgages under 12 U.S.C. § 1715z-20 and Streamlined Refinances under 12 U.S.C. §

1715n(a)(7), insured by the FHA between January 1, 2006 and December 31, 2011, that resulted in claims for payment submitted to the FHA on or before June 30, 2013 (hereafter referred to as the “Covered Conduct”). The United States contends that it has certain civil claims against PHH based upon the Covered Conduct.

D.                 This Settlement Agreement relates to the portion of the Civil Action and related claims of the United States pertaining to FHA-insured mortgages. By separate settlement agreement, to be entered into on or about the Effective Date (the “VA/GSE Settlement Agreement”), the United States, PHH Corporation, PHHMC, and Relator are resolving the portion of the Civil Action and related claims of the United States pertaining to mortgage loans insured by the VA and mortgage loans acquired by Fannie Mae and Freddie Mac. By this Settlement Agreement and the VA/GSE Settlement Agreement, the parties are fully and finally resolving the Civil Action as to the Relator and the United States, and the Covered Conduct as defined in this Settlement Agreement and the VA/GSE Settlement Agreement as to the United States.

E.                  This Settlement Agreement is neither an admission of liability by PHH nor a concession by the United States that its claims are not well founded.

F.                  Relator claims entitlement under 31 U.S.C. § 3730(d) to a share of the $45,500,000 settlement amount attributable to PHHMC and to Relator’s reasonable expenses, attorneys’ fees and costs.

To avoid the delay, uncertainty, inconvenience, and expense of protracted litigation of the above claims, and in consideration of the mutual promises and obligations of this Settlement Agreement, the Parties agree and covenant as follows:

TERMS AND CONDITIONS

1.                  PHH shall pay to the United States a total of $65,000,000 (Sixty Five Million Dollars) (the “Combined Settlement Amount”) by electronic funds transfer no later than seven (7) days after the Effective Date of this Agreement, pursuant to written instructions provided by the Civil Division of the United States Department of Justice. Of the Combined Settlement Amount, the United States attributes $45,500,000 (Forty Five Million Five Hundred Thousand Dollars) (the “PHHMC Settlement Amount”) to claims to the FHA on loans endorsed by PHHMC, and $19,500,000 (Nineteen Million Five Hundred Thousand Dollars) (the “PHHHL Settlement Amount”) to claims to the FHA on loans endorsed by PHHHL.

2.                  Conditioned upon the United States receiving the Combined Settlement Amount from PHH and as soon as feasible after receipt, the United States shall pay to Relator $7,507,500 (Seven Million Five Hundred Seven Thousand Five Hundred Dollars) by electronic funds transfer.

3.                  Subject to the exceptions in Paragraph 5 (concerning excluded claims) below, and conditioned upon PHH’s full payment of the Combined Settlement Amount, the United States releases PHH and its successors from any civil or administrative monetary claim the United States has for the Covered Conduct under the False Claims Act, 31 U.S.C. §§ 3729-3733; the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C. § 1833a, the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801-3812; or the common law theories of breach of contract, breach of fiduciary duty, payment by mistake, unjust enrichment, negligence, fraud, and any other statutory or common law cause of action that the Civil Division of the Department of Justice has authority to assert and compromise pursuant to 28 C.F.R. § 0.45(d) in connection with the Covered Conduct.

4.                  Conditioned upon PHH’s full payment of (A) the PHHMC Settlement Amount and (B) the settlement amount described in the VA/GSE Settlement Agreement, Relator, for herself and for her heirs, successors, attorneys, agents, and assigns, releases PHH together with its current and former corporations, predecessor and successor corporations, divisions, affiliates, and direct and indirect subsidiaries, including without limitation PHHMC and PHHHL, and any of their current or former officers, directors, employees, agents, or attorneys, from any and all claims and causes of action of any nature and description, known or unknown, that the Relator has or may have up to and including the Effective Date, including but not limited to claims that the Relator has or has asserted in the Civil Action; provided, however, that nothing in this Agreement shall preclude Relator from seeking to recover her reasonable expenses necessarily incurred or reasonable attorney’s fees and costs from PHH pursuant to 31 U.S.C. § 3730(d).

5.                  Notwithstanding the releases given in paragraphs 3 and 4 of this Agreement, or any other term of this Agreement, the following claims of the United States are specifically reserved and are not released:

a.                   Any liability arising under Title 26, U.S. Code (Internal Revenue Code);

b.                  Any criminal liability;

c.                   Except as explicitly stated in this Agreement, any administrative liability, including the suspension and debarment rights of any federal agency;

d.                  Any liability to the United States (or its agencies) for any conduct other than the Covered Conduct;

e.                   Any liability based upon obligations created by this Agreement; and

f.                    Any liability of individuals.

6.                  Relator and her heirs, successors, attorneys, agents, and assigns shall not object to this Agreement but agree and confirm that this Agreement is fair, adequate, and reasonable under all the circumstances, pursuant to 31 U.S.C. § 3730(c)(2)(B). Conditioned upon Relator’s receipt of (A) the payment described in Paragraph 2 of this Agreement and (B) the payment described in paragraph 2 of the VA/GSE Settlement Agreement, Relator and her heirs, successors, attorneys, agents, and assigns, fully and finally releases, waives, and forever discharges the United States, its agencies, officers, agents, employees, and servants from any claims arising from the filing of the Civil Action or under 31 U.S.C. § 3730, and from any claims to a share of the proceeds of this Agreement and/or the Civil Action up to and including the Effective Date.

7.                  PHH waives and shall not assert any defenses PHH may have to any criminal prosecution or administrative action relating to the Covered Conduct that may be based in whole or in part on a contention that, under the Double Jeopardy Clause in the Fifth Amendment of the Constitution, or under the Excessive Fines Clause in the Eighth Amendment of the Constitution, this Agreement bars a remedy sought in such criminal prosecution or administrative action. Nothing in this paragraph or any other provision of this  Agreement  constitutes  an  agreement  by  the  United  States  concerning  the

characterization of the Settlement Amount for purposes of the Internal Revenue laws, Title 26 of the United States Code.

8.                  PHH fully and finally releases the United States, its agencies, officers, agents, employees, and servants, from any claims (including attorney’s fees, costs, and expenses of every kind and however denominated) that PHH has asserted, could have asserted, or may assert in the future against the United States, its agencies, officers, agents, employees, and servants, related to the Covered Conduct and the United States’ investigation and prosecution thereof.

9.                  a.  Unallowable Costs Defined: All costs (as defined in the Federal Acquisition Regulation, 48 C.F.R. § 31.205-47) incurred by or on behalf of PHH, and its present or former officers, directors, employees, shareholders, and agents in connection

with:

(1)
the matters covered by this Agreement;

(2)
the United States’ audit(s) and civil investigation(s) of the matters covered by this Agreement;

(3)
PHH’s investigation, defense, and corrective actions undertaken in response to the United States’ audit(s) and civil investigation(s) in connection with the matters covered by this Agreement (including attorney’s fees);

(4)
the negotiation and performance of this Agreement;

(5)
the payment PHH makes to the United States pursuant to this Agreement and any payments that PHH may make to Relator, including costs and attorney’s fees; are unallowable costs for government contracting purposes (hereinafter referred Unallowable Costs).

b.                  Future Treatment of Unallowable Costs: Unallowable Costs will be separately determined and accounted for by PHH, and PHH shall not charge such Unallowable Costs directly or indirectly to any contract with the United States.

c.                   Treatment of Unallowable Costs Previously Submitted for Payment: Within 90 days of the Effective Date of this Agreement, PHH shall identify and repay by adjustment to future claims for payment or otherwise any Unallowable Costs included in payments previously sought by PHH or any of its subsidiaries or affiliates from the United States. PHH agrees that the United States, at a minimum, shall be entitled to recoup from PHH any overpayment plus applicable interest and penalties as a result of the inclusion of such Unallowable Costs on previously-submitted requests for payment. The United States, including the Department of Justice and/or the affected agencies, reserves its rights to audit, examine, or re-examine PHH’s books and records and to disagree with any calculations submitted by PHH or any of its subsidiaries or affiliates regarding any Unallowable Costs included in payments previously sought by PHH, or the effect of any such Unallowable Costs on the amount of such payments.

10.               PHH agrees to cooperate fully and truthfully with the United States in any investigation relating to the Covered Conduct of individuals and entities not released in this Agreement. Upon reasonable notice, PHH shall encourage, and agrees not to impair, the cooperation of its directors, officers, and employees, and shall use its best efforts to make available, and encourage, the cooperation of former directors, officers, and employees for interviews and testimony, consistent with the rights and privileges of such individuals. PHH further agrees to furnish to the United States, upon request, complete and unredacted copies of all non-privileged documents, reports, memoranda of interviews, and records in its possession, custody, or control concerning any investigation of the Covered Conduct that it has undertaken, or that has been performed by another on its behalf.

11.              This Agreement is intended to be for the benefit of the Parties only.

12.              Upon receipt of (A) the Combined Settlement Amount described in Paragraph 1 above and (B) the settlement amount described in the VA/GSE Settlement Agreement, the United States and Relator shall promptly sign and file in the Civil Action a stipulation of dismissal pursuant to Fed. R. Civ. P. 41(a)(1). The stipulation shall be with prejudice as to any claims of the Relator (except with respect to her claim for attorney’s fees and costs pursuant to 31 U.S.C. § 3730(d)); with prejudice as to the United States with respect to the Covered Conduct; and otherwise be without prejudice as to the United States.

13.              Except as otherwise provided in this Agreement, each Party shall bear its own legal and other costs incurred in connection with this matter, including the preparation and performance of this Agreement.

14.              Each Party and signatory to this Agreement represents that it freely and voluntarily enters in to this Agreement without any degree of duress or compulsion.

15.              This Agreement is governed by the laws of the United States. The exclusive jurisdiction and venue for any dispute relating to this Agreement is the United States District Court for the District of Minnesota; provided, however, that any dispute between PHH and the Relator with respect to attorney’s fees shall be heard in the United States District Court for the Eastern District of New York.  For purposes of construing this

Agreement, this Agreement shall be deemed to have been drafted by all Parties to this Agreement and shall not, therefore, be construed against any Party for that reason in any subsequent dispute.

16.              This Agreement constitutes the complete agreement between the Parties.

This Agreement may not be amended except by written consent of the Parties.

17.              The undersigned counsel represent and warrant that they are fully authorized to execute this Agreement on behalf of the persons and entities indicated below.

18.              This Agreement may be executed in counterparts, each of which constitutes an original and all of which constitute one and the same Agreement.

19.              This Agreement is binding on PHH’s successors, transferees, heirs, and assigns.

20.              This Agreement is binding on Relator’s successors, transferees, heirs, and assigns.

21.              All parties consent to the United States’ disclosure of this Agreement, and information about this Agreement, to the public.

22.              This Agreement is effective on the date of signature of the last signatory to the Agreement (Effective Date of this Agreement). Facsimiles of signatures shall constitute acceptable, binding signatures for purposes of this Agreement.

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