Allegations made by a whistleblower on government mortgages have ended in a large settlement with JPMorgan Chase & Co.
According to the Department of Justice, Chase has admitted approving thousands of loans insured by the Federal Housing Administration that didn’t meet FHA underwriting guidelines.
In addition, the New York-based company reportedly approved hundreds of mortgages guaranteed by the Department of Veterans Affairs that didn’t qualify based on VA underwriting requirements.
Even after Chase’s own internal reviews uncovered more than 500 defective loans, it failed to notify FHA and VA about its discovery.
“As a consequence of JPMorgan Chase’s misrepresentations, both the FHA and the VA incurred substantial losses when unqualified loans failed and caused the FHA and VA to cover the associated losses,” the government said.
The Justice Department alleges that Chase violated the False Claims Act.”
Chase reportedly admitted that the violations started in 2002 and continued for more than a decade.
Mortgage Bankers Association President and Chief Executive Officer David Stevens previously told Mortgage Daily that liability posed by FHA violations under the False Claims Act includes treble damages — which can be three times the outstanding balance of the loan.
“Not three time the net of the loss; three times the outstanding balance of the loan,” Stevens said.
Chase has agreed to pay $614 million as part of its settlement with the Justice Department. It has also agreed to institute new and tighter controls to prevent abuses of FHA’s automated underwriting system.
The case, which was handled by the U.S. Attorney for the Southern District of New York, was prompted by a private whistleblower.
In previous mortgage cases, whistleblowers have been awarded between 19 percent and 26 percent of the settlement amounts.
“This settlement recovers wrongfully claimed funds for vital government programs that give millions of Americans the opportunity to own a home and sends a clear message that we will take appropriately aggressive action against financial institutions that knowingly engage in improper mortgage lending practices,” Associate Attorney General Tony West said in the announcement.
