The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG) assisted in an investigation into alleged violations of Federal Housing Administration (FHA) regulations by Taylor, Bean & Whitaker Mortgage Corporation and Home America Mortgage, Inc. The investigation included a qui tam action filed under the False Claims Act in the U.S. District Court for the Northern District of Georgia. The False Claims Act allows private persons to file suit for violations of the False Claims Act on behalf of the Government. A suit filed by an individual on behalf of the Government is known as a “qui tam” action, and the person bringing the action is referred to as a “relator.”
Taylor, Bean & Whitaker and Home America participated in HUD’s direct endorsement program. The direct endorsement program authorizes private-sector mortgage lenders to approve mortgage loans for insurance by FHA. Lenders approved for the program must follow various FHA requirements and provide annual and per loan certifications that the lender complied with these requirements when underwriting and approving loans for FHA insurance. In December 2006, the relators filed a qui tam action in the U.S. District Court for the Northern District of Georgia, alleging that the two lenders knowingly engaged in a pattern of fraudulent activity and business practices. In 2009, Taylor, Bean & Whitaker and Home America separately filed for bankruptcy but the court administratively consolidated the filings into one bankruptcy case. In May 2010, the U.S. Department of Justice, on behalf of HUD, filed a proof of claim with the bankruptcy court against Taylor, Bean & Whitaker for allegedly making false claims to HUD of nearly $179 million; and a filed a similar proof of claim against Home America for $131 million.
In September 2010, the United States joined in the qui tam civil action, contending that it had certain civil claims against the two lenders, arising from claims they had made against the FHA insurance fund. In December 2013, HUD, the relators, and the Taylor, Bean & Whitaker Plan Trust entered into a settlement agreement regarding the civil action, which resulted in two approved claims by HUD against Taylor, Bean & Whitaker in the bankruptcy action for $89.9 million and $82.2 million, respectively. In January 2015, the U.S. District Judge approved an interim distribution to the U.S. Department of Justice, on behalf of HUD, of HUD’s pro rata share of funds available to pay the $89.9 million claim. The amount distributed was $596,984. On January 22, 2015, HUD received $489,527, and other entities received the remaining $107,457. HUD has recorded the interim distribution in its accounting records; therefore, no further action is necessary.