Flagstar Agrees To Pay $133 Million To Settle Claims Of Mortgage Fraud

TROY, Mich. -- Flagstar Bancorp Inc. has agreed to pay $133 million to settle claims its mortgage unit engaged in fraudulent lending practices.

The U.S. government said in a release Friday it filed and settled a civil lawsuit against the Troy-based holding company for Flagstar Bank. The government says the bank improperly approved residential home mortgage loans for government insurance.

"The lawsuit ... is another stark example of how certain lenders put profit ahead of responsibility by recklessly churning out mortgage loans without regard to the risk that those loans would default or the significant consequences for the individual homeowners who would inevitably default on their loans, the housing market, and in the aggregate, our nation's economy," U.S. Attorney Preet Bharara of the Southern District of New York said in a statement. "Flagstar has accepted responsibility for its conduct and committed to reform its business practices to ensure compliance with (federal) requirements."

Flagstar Chief Executive Joseph Campanelli said in a release that the settlement allows the bank to move forward and officials are "pleased to have resolved this matter."

The bank admitted to making false certifications that caused the Federal Housing Administration to accept loans for government insurance that weren't eligible and resulted in losses to the federal Housing and Urban Development department when the loans defaulted.

Under the settlement, Flagstar agreed to pay $15 million within 30 days and pay an additional $118 million as soon as it meets certain financial benchmarks. The government said the payments represent the maximum that Flagstar can pay.

Flagstar also must create a training program for all employees involved with FHA loans, and its participation in the federal loan program will be monitored by a third party at the bank's expense.

The bank said it expects the settlement terms will increase its fourth quarter net loss by between $26 million and $34 million and will announce its revised earnings for the period in the near future.

The government said the complaint is the fourth suit filed by Bharara's office during the past nine months alleging "reckless or fraudulent lending practices" by home mortgage lenders. The government last week sued and settled a $158 million case with Citibank subsidiary CitiMortgage Inc.

Comments

[lostinpottersville]

06:52 PM on 02/28/2012

the real crime is that no is willing to admit that financial predators thrive when they have an abundance of prey. no one understands that the houses that were being financed during this time were outrageously overpriced due to speculative price setting. mortgage companies didn't set the prices--accepted contracts between represented buyers and sellers set the prices. not one media source--except maybe case schiller-- was sounding the alarms about the fact that prices had reached valuations that had absolutely no historical precedent--and the scariest thing is, loans were being made at 100% of these valuations. government and industry officials, facilitated by the media advertising machine, perpetuated the financial myth that housing values NEVER GO DOWN. residential homeowners had no idea that the 'bundled' pool their loan was sold into would have ironclad legal protections against modifications of the original terms of the mortgage. case schiller said today values went down another 1.5%. that means that every first time fha buyer who bought last year is upside down if they have to resell in the next year. the real problem is rampant financial illiteracy. in 2008 a bi partisan financial report came out showing that 40,000 high school student scored a 53% on a basic financial literacy test. the suggestion by the commission: mandate financial literacy in schools. yet as of 2012--4 years later--none of those suggestions have been implemented. we can rehash the past, or try a novel idea--prevention through financial education.

[LoyalDem4646]

04:52 AM on 02/28/2012

I'm sure the consumers will see none of that money because most of them won't even be informed they have something coming.

[Housing Is Cratering]

08:15 AM on 02/28/2012

Borrowers defaulted. How would they have "something coming" other than eviction papers?

[LoyalDem4646]

09:48 AM on 03/01/2012

Was that before or after their home value dropped $100,000? I'm sure some of those defaulters covered their mortgage with interest payments so don't act like they didn't cover their loan.

[Scurvydog74]

11:12 PM on 02/27/2012

This is a red herring to save Fanny and Freddie, who everyone who listens to Fox knows, deliberately caused the collapse by letting lazy people buy mansions they couldn't afford to pay for, and the democrat party, who made them do it, so welfare queens would have a nice swimming pool for all their illegitimate children. This bank is innocent.

[LoyalDem4646]

04:57 AM on 02/28/2012

Listening to Fox News already shows your IQ. The banks took advantage of minorities by offering loans they couldn't afford once the teaser rate expired expecting to resale the house at a higher price once the minority was evicted. The problem was this scam finally played itself out because all banks were doing it. If they would have given minorities a fixed low rate, we wouldn't have this problem - but no money in that plan.

[Miss Muffett]

04:04 PM on 02/27/2012

Well this is cute...

The 'Big 5' are found guilty of "poorly processed paper work" and "bad practices" while this no-name bank seems to get the treatment we expected the big banks to get.

How they moved forward in prosecuting Flagstar is much how I would like to have seen the recent settlement handled. Admit wrongdoing, alter practices, pay upfront for the damage caused with on-going payment beyond that, third party oversight moving forward at the bank's expense. 

Speaking of oversight....where in the frack is the SEC and the rest of the financial/business regulation agencies?? 

ISNT AVOIDING CATASTROPHES LIKE THIS EXACTLY THEIR JOB DESCRIPTION??

[anonymous67]

03:43 PM on 02/27/2012

America, our government is corrupt.

Should laws and taxes only apply for the "little people". Are bankers above the law? Should those systematically stealing hundreds of millions be immune from justice?

And these were NOT victimless crimes -- millions of Americans lost jobs, homes, retirements and savings. And this country brought to its knees.

The American people DEMAND those responsible be prosecuted -- and the guilty go to prison. We DEMAND an INDEPENDENT prosecutor to investigate financial crimes, government corruption and obstruction of justice.

The America people WILL have justice.

[Dave Hellbent]

03:33 PM on 02/27/2012

steal a loaf of bread - go to jail.

commit multi million or multi-billion dollar fraud - restructure your business to become compliant with federal law and pay a fine equal to a fraction of the fraud of which you have been found guilty of committing...

Why aren't we jailing the bankers behind the fraud, seizing all of their assets and closing down their banks?

[Carl W Lowery]

11:02 PM on 02/27/2012

Because the people and agencies that you go to for justice are corrupt as well. They likely get money for agreeing to the settlement deal. What money can you receive from a person stealing a loaf of bread?

[JoAnn Kennedy]

02:13 PM on 02/27/2012

Off topic a little why is it that the DOW is about to hit 13,000 (a new all time high), oil is $105.00 a barrel and food prices are up 13% from last year and yet ----- 50% of all Americans are on Food Stamps, there are 14 Million homes fraudclosed upon and it is reported that towns, and municpalities are going bankrupt. States are just barely making it and are using the AG Mortgage Setlement (HUSH MONEY) to close gaps in their budget. This whole scenario is so wrong.

[JoAnn Kennedy]

01:59 PM on 02/27/2012

Flagstar Bank. The government says the bank improperly approved residential home mortgage loans for government insurance. Wouldn't that be called stealing? Lying? Insurance fraud?

[cats530]

02:27 PM on 02/27/2012

No, no, no. When the banksters commit fraud, theft and perjury, its called "sloppy paperwork". When a little guy does it...lock em' up and throw away the key!

[JoAnn Kennedy]

02:42 PM on 02/27/2012

lol

[cats530]

12:56 PM on 02/27/2012

Wonder WHY nothing is every properly investigated and no banksters go to jail?

"Ok, that makes sense: Ludwig’s a former head of the bank-run OCC, so of course his firm was lined up to do OCC reviews. And from his long form bio on the company’s site, we learn: “Before becoming Comptroller, Gene was a partner in the law firm of Covington & Burling, specializing in banking law.”Do you remember Covington & Burling, and its connection to federal law enforcement, MERS, and implicitly the Justice Deparment’s failure to prosecute the bankers that are Covington & Burling’s clients? Not really? Well check out Covington’s “Financial Institutions” practice, and its White Collar Criminal Defense page. Note Covington’s partnership includes John Dugan, who returned to the firm after his recent years as Comptroller of the Currency, Edward Yingling, recent head of the American Bankers Association, James Garland, recent Deputy Chief of Staff to AG Eric Holder and Steve Fagell, also a recent Deputy Chief of Staff to AG Eric Holder."

http://www.nakedcapitalism.com/2012/02/abigail-field.html

[fabuloush2s]

12:37 PM on 02/27/2012

How terrible no one will be prosecuted for these serious criminal offenses.

I just don't understand how top officials feel these releases are fair and constitue closure for the people who are victims of fraud! I would imagine going forward, the wrongdoing for fraud and white collar crimes will be reduced statewide to jay walking.

[2garen]

11:07 AM on 02/27/2012

And it is considered a "Person" that will never be prosecuted nor will that "Person" go to jail.

[cats530]

12:58 PM on 02/27/2012

A twist on Leona Helmsley's quote, "Only little people pay taxes." Only little people go to jail.

[sanfran55]

07:13 AM on 02/28/2012

LOL

[lmayj]

09:15 AM on 02/27/2012

And BLA BLA BLA BLA BLA...no one is prosecuted.

[Birdman 49]

09:13 AM on 02/27/2012

Yet again, no one had to go to jail

[Captain Hindsight]

08:53 AM on 02/27/2012

The government said the payments represent the maximum that Flagstar can pay.

According to their web site they have plenty of assets that could be sold off to make full restitution.

Flagstar introduced a complete set of consumer loans, as well as a robust line of business banking products. We continued to originate and purchase loans in all 50 states through a network of lenders and correspondents, and through 27 Flagstar home loan centers in 13 states. Through this network, we originated $26 billion in mortgages.
https://www.flagstar.com/about-flagstar/flagstar-bank-history.html

[Carl W Lowery]

11:06 PM on 02/27/2012

So the fine would be less than 5%. That's less than sales tax....#smh#

[lofttypeofaview]

06:17 AM on 02/27/2012

So let me get this straight. If Bernie Madoff was a banker who defrauded the 99%, he would've only had to pay a fraction of his illegally obtained wealth in settlements to the government, wouldn't have had all of his illegally obtained assets seized, auctioned to recover as much of the funds as possible, to be paid directly to the 1% victims; instead of the government and wouldn't be in prison serving decades?

If the 1% deserved the type of justice that they received from the Ponzi Scheme orchestrates, then why doesn't the 99% deserve to receive the same justice from the fraud that the bankers and politicians orchestrated?

As a 99%er myself, I never placed blame upon the 1%er victims of the Ponzi Schemes, yet the 1%ers blame the 99%ers for being victims of fraud.