Following allegations that they engaged in a scheme to charge phony fees to consumers, the Department of Housing and Urban Development’s (HUD) Mortgagee Review Board (MRB) has announced settlement agreements with American Home Free Mortgage LLC (AHFM) of Prosper, Texas, and R.H. Lending, of Colleyville Texas. The false fees, HUD said, improperly inflated mortgages for borrowers purchasing newly constructed manufactured housing.
However, this was not all the two mortgage lenders were accused of. The two also face 11 alleged violations of Federal Housing Administration (FHA) rules, and were charged with multiple quality control and annual certification violations.
“FHA-approved lenders are obliged to apply our underwriting standards, not only to protect our insurance fund, but to make certain families can sustain their mortgages,” said Helen Kanovsky, HUD’s general counsel. “Lenders who engage in business practices that do not conform to generally accepted standards or who act irresponsibly will not be tolerated.”
For its part, AHFM was accused of artificially increased mortgage costs by an average of $12,000 per loan through illegitimate fees paid to a company owned and operated by its sales manager. Although AHFM agreed to pay a $169,419 civil money penalty, along with the permanent withdraw of its FHA approval, it did not admit fault or liability with respect to HUD’s allegations.
R.H. Lending found itself in a similar boat with the Mortgagee Review Board in June 2014, when HUD alleged that the lender had taken part in a scheme to disguise fees charged to borrowers as legitimate construction fees, but for which no work was performed, creating an inflated mortgage for the borrowers and increasing FHA’s exposure to loss. R.H. Lending agreed to pay $300,000 in civil money penalties, along with a permanent withdrawal of its FHA approval, all while refusing to admit fault or liability.
HUD also banned two R.H. Lending employees from doing business with the federal government for seven years.
The Mortgagee Review Board has the power to take administrative action against FHA-approved lenders that are not in compliance with the program’s lending requirements. The board reviews cases that are referred, which generally include cases involving lenders who knowingly and materially violate HUD/FHA program statutes, regulations and handbook requirements. Lenders who are found to have violated these regulations are subject to administrative sanctions by the board. For serious violations, the board can withdraw a lender’s FHA approval so the lender cannot participate in FHA programs. In less serious cases, the lenders enter into a settlement agreement to bring them into compliance. Additionally, the board may choose to impose civil money penalties, probation, and suspension as well as issue letters of reprimand.