By Mike Colpitts
A mortgage lender is being sued by the U.S. Justice Department in an effort to recoup $1.6 million in insurance premiums the Federal Housing Administration was forced to pay on homes that were foreclosed. The lawsuit was filed against an Illinois based lender, MDR Mortgage Corporation.
The suit, filed against Robert S. Luce, the founder and president of the company alleges MDR and its employees represented to mortgage buyers his firm was not under criminal investigation for nearly a four year period when it originated the FHA insured mortgages when it actually was being investigated by federal authorities. The loans later defaulted. The complaint seeks recovery under the False Claims Act and civil penalties under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
Luce had already been indicted on federal charges more than three years earlier on April 7, 2005 for mail fraud, wire fraud, obstruction of justice and making false statements prior to underwriting the loans that were made, according to a complaint filed in the Northern District of Illinois. HUD was forced to pay more than $1.6 million in claims to holders of the defaulted mortgages. MDR is no longer participating in the HUD insurance programs.
The statements were false at the time they were made, and Luce knew they were false at the time he or other MDR employees made them, federal prosecutors contend. Since Luce was under indictment, MDR was not eligible to originate mortgage loans under FHA requirements. Yet, the mortgage company originated more than 90 FHA insured loans that later defaulted.
Approved HUD-FHA lenders originate FHA-insured mortgages, which are often resold to another lender. HUD lowers the cost of mortgage loans for loan borrowers and guarantees the repayment of insured loans that go into default, protecting lenders and minimizing the risk of loss on mortgages. Should homeowners default, lenders may submit a claim under which HUD will pay the balance of the loan, related interest and other costs, assuming legal possession of the property.
“Mortgage lenders, who lie in order to reap the benefits of these insurance programs, as is alleged here, undermine the integrity of these programs,” said Tony West, Assistant Attorney General of the Justice Department’s Civil Division, “and misuse taxpayer funds that are meant to support single family housing.”