First American Mortgage Trust, which does business as NXTLoan.com, and the company’s CEO will pay just over $1 million to settle charges brought by the Department of Justice, which accused the mortgage lender of submitting false claims on mortgages insured by the Federal Housing Administration.
According to the U.S. Attorney’s Office for the District of Massachusetts, First American Mortgage Trust’s founder and CEO, Barry Polack, agreed to a civil settlement of $1,025,000, which resolves allegations that First American Mortgage Trust ignored the FHA’s due diligence requirements and falsely certified that First American Mortgage Trust loans qualified for FHA insurance when they actually did not – all at Polack’s direction.
The settlement also resolves allegations that Polack falsely certified to the FHA that First American Mortgage Trust complied with quality control requirements, and failed to report known loan defects.
The settlement is just the latest in a long string of lenders that have settled with the DOJ for allegedly submitting false claims to the FHA.
In recent months, Wells Fargo agreed to a $1.2 billion settlement, while Franklin American settled with the government for $70 million, Walter Investment settled for $29.6 million, First Tennessee, the regional bank for First Horizon National, settled for $212.5 million, M&T Bank settled for $64 million, Freedom Mortgage agreed to pay $113 million, Regions Bank settled for $52.4 million, and BB&T settled for $83 million – all for similar violations.
And that list does not include two lenders – Quicken Loans or Guild Mortgage – that are fighting back after the DOJ accused each of similar actions.
As with many of the other lenders, First American Mortgage Trust acted as a “direct endorsement lender” in the FHA insurance program. As a direct endorsement lender, the lender has the authority to originate, underwrite and endorse mortgages for FHA insurance without prior approval from the FHA.
Under the direct endorsement lender program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance.
As part of the settlement, First American Mortgage Trust and Polack admitted that between 2005 and 2011, First American Mortgage Trust did not conduct the due diligence required by FHA in certain cases, and as a result, some First American Mortgage Trust loans did not meet FHA’s quality standards and were ineligible for FHA insurance.
But, First American Mortgage Trust underwriters, supervised by Polack, certified those loans for FHA insurance, the U.S. Attorney’s Office stated.
And when some of those loans defaulted, FHA paid insurance claims on loans that would not been insured without Polack and First American Mortgage Trust's deception.
“This settlement is another example of the government’s efforts to hold mortgage lenders and individuals accountable for fraudulent underwriting of government-insured mortgages,” said United States Attorney Carmen Ortiz. “In order to obtain HUD insurance, First American Mortgage Trust certified that its loans complied with HUD’s quality standards while ignoring defects that made the loans ineligible for FHA insurance.”
According to the U.S. Attorney’s Office, the settlement took into consideration First American Mortgage Trust’s and Polack’s financial circumstances and recent improvements to First AmericanMortgage Trust’s business practices.
“We will not tolerate the reckless disregard for FHA’s underwriting standards,” said Tonya Robinson, Acting General Counsel for the Department of Housing and Urban Development. “FHA’s insurance fund, and the millions of families who rely upon it, depend on the good faith and integrity of the mortgage lenders with whom we do business. We will continue to work aggressively to weed out participants in the FHA program who purposefully fail to meet our most basic requirements.”
