American Financial Network, Inc. (AFN), a mortgage lender based in Brea, Calif., agreed to pay $1,037,145 to resolve allegations that it improperly and fraudulently originated government-backed mortgage loans insured by the Federal Housing Administration (FHA), a component of the U.S. Department of Housing and Urban Development (HUD).
Since at least December 2011, AFN has been a participant in FHA’s Direct Endorsement Program. Through this program, a lender such as AFN is authorized to originate and approve mortgage loans to be insured by FHA without any prior review or approval by FHA. Lenders such as AFN are responsible for carefully underwriting the mortgage to make sure that it meets all FHA requirements. Once a mortgage loan is insured by FHA, if the borrower defaults or is unable to repay the mortgage, the lender that holds the mortgage note can submit a claim for insurance benefits to FHA to cover its losses.
The settlement resolves allegations that between December 2011 and March 2019, AFN knowingly underwrote certain FHA mortgages and approved for insurance certain mortgages that did not meet FHA requirements or qualify for insurance, resulting in losses to the United States when the borrowers defaulted on those mortgages. The settlement further resolves allegations that AFN knowingly failed to perform quality control reviews that it was required to perform.
This case began in March 2019 when a whistleblower, a former loan processor with AFN, filed a qui tam complaint under seal in federal court in Spokane. When a whistleblower, or “relator,” files a qui tam complaint, the False Claims Act requires the United States to investigate the allegations and elect whether to intervene and take over the action or to decline to intervene and allow the relator to go forward with the litigation on behalf of the United States. The relator is generally able to then share in any recovery. Pursuant to the settlement agreement, the relator in this case will receive $228,172 of the settlement, and will also recover her attorney’s fees, expenses, and costs.
The settlement was the result of a joint investigation conducted by the U.S. Attorney’s Office for the Eastern District of Washington, HUD’s Office of Inspector General, and the U.S. Department of Veterans Affairs, Office of Inspector General, Spokane Resident Office.
Assistant U.S. Attorneys Tyler Tornabene and Dan Fruchter and Special Assistant U.S. Attorney Frieda Zimmerman handled this matter on behalf of the United States. The claims resolved by the settlement are allegations only and there has been no determination of liability.