On June 1, 2015, the Department of Justice announced that First Tennessee Bank N.A., headquartered in Memphis, Tennessee, has agreed to pay the U.S. Government $212.5 million to resolve allegations that it violated the False Claims Act by certifying mortgage loans insured by the U.S. Department of Housing and Urban Development (HUD) Federal Housing Administration (FHA) that did not meet HUD’s underwriting requirements.
The settlement resolves allegations that First Tennessee, through its subsidiary First Horizon Home Loans Corporation, failed to comply with FHA origination, underwriting and quality control requirements. According to the lawsuit filed by the Government, between January 2006 and October 2008, First Horizon allegedly claimed that mortgage loans it had approved qualified for FHA insurance coverage, when in fact these loans did not meet FHA’s guidelines. Because First Horizon is a Direct Endorsement Lender, it has the authority to originate, underwrite and endorse mortgages for FHA insurance and these loans are not reviewed by either FHA or HUD. As a result, according to the lawsuit, First Horizon created mortgages that it knew were high risk, submitted claims for reimbursement when these loans failed, and received insurance payments from HUD for these defaulted loans.
This alleged practice by First Horizon violated the False Claims Act. First Tennessee’s conduct (through its subsidiary First Horizon) caused FHA to insure hundreds of loans that were not eligible for insurance and, as a result, FHA suffered substantial losses when it later paid insurance claims on those loans.
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