Fifth Third Bancorp has agreed to settle with the government civil fraud claims on government-insured residential loans that it originated over a 10-year period.
The Cincinnati-based company in 2012 certified 1,439 home loans that were originated between 2003 and 2013 as eligible for Federal Housing Administration insurance.
But Fifth Third subsequently determined through post-closing quality reviews that the mortgages
were materially defective and, as a result, were ineligible for FHA insurance.
However, the financial institution failed to self-report the ineligibility to the Department of Housing and Urban Development — a violation of the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989.
Fifth Third eventually came clean and
voluntarily disclosed the materially defective loans to the government.
HUD ended up paying millions of dollars in FHA insurance claims on the mortgages.
The financial institution has agreed to settle civil fraud claims for $84,911,018, which will cover its False Claims Act and FIRREA liability on 519 of the loans that defaulted and for which HUD paid insurance claims on.
It will also indemnify HUD on 920 defective loans that haven’t yet defaulted.
In addition, Fifth Third will make a $2,044,000 administrative payment to HUD as part of
separate indemnification agreement.
“Fifth Third Bancorp admitted and accepted responsibility for failing to self-report mortgage loans it knew to be defective, contrary to HUD requirements,” an announcement from the Special Inspector General for the Troubled Asset Relief Program said. “Fifth Third Bancorp has also reformed its business practices and terminated the employment of responsible employees.”
While the matter arose, in part, from a whistleblower complaint filed under the False Claims Act, Fifth Third made its voluntary disclosure
without knowledge of that complaint, which was filed under seal, and without knowing that the government was conducting an investigation.
