U.S. DoJ FHA PHH $74mn Underwriting Fine

On 8 August, DoJ fined PHH $74mn re HUD underwriting requirements.

  • Agreed to pay $65mn to resolve FHA allegations and $9.45mn for VA and FHFA.

Alleged Violations

  • PHH failed to meet requirements, when originating and underwriting mortgages.
  • Specifically, FHA, VA, Fannie Mae and Freddie Mac re quality control requirement.
  • From 2006, PHH participated as direct endorsement lender (DEL) in FHA program.
  • DEL authorized to originate, underwrite, and endorse mortgages re FHA insurance.
  • Under DEL, FHA does not review loan before is endorsed for insurance compliance.
  • DEL must ensure proper underwriting and certify the mortgages re FHA insurance.

Loan Defects

  • Cited loan defects which caused loans to be ineligible for FHA mortgage insurance.
  • Did not document borrower credit, via pay stub, verify employment, credit reports.
  • Nor verified that borrower had adequate earnest money deposit and funds to close.
  • Failed to document borrower’s claimed net equity in a prior residence or paid debts.
  • Including debts in borrower’s liabilities, exceeding HUD’s debt-to-income ratio level.
  • Insuring loan for FHA, despite borrower not meeting the HUD statutory investment.