ABN AMRO Mortgage Group has struck a $41 million settlement with the U.S. government in a probe involving alleged falsifications in thousands of federally insured loans, the Department of Housing and Urban Development said today.

The mortgage giant, one of the top 10 U.S. real estate lenders by volume in 2004, entered into a more than $41 million settlement with the U.S. government as a result of the probe, HUD said. The alleged falsifications affect about 28,000 loans, according to HUD.

The settlement reimburses the FHA program for mortgage insurance losses caused by “lax procedures during the heyday of the housing boom,” HUD Inspector General Kenneth Donahue said in a teleconference following the announcement of the settlement.

ABN AMRO agreed to pay the government $16.8 million and will not submit the claims for 783 defaulted loans, saving the Federal Housing Administration insurance fund about $24.35 million in losses, according to HUD.

“They (ABN AMRO) acted as a good corporate citizen once we put them on notice and acted in a model way” to address the department’s concerns, said Keith E. Gottfried, HUD’s General Counsel.

In the settlement agreement, posted on HUD’s Web site, ABN said it “admits no wrongdoing or fault” related to the allegations. In a statement, ABN said, “This settlement resolves a past issue. ABN AMRO Mortgage Group is committed to an FHA loan program that is in full compliance with all of the applicable requirements. The company remains steadfast in monitoring its improved controls, and does not and will not tolerate misconduct.”

In 2003, HUD discovered underwriting deficiencies and improper conduct by an ABN employee, the agency said today.

According to HUD, after the matter was brought to the company’s attention, ABN launched an internal investigation. This revealed that, in violation of FHA rules, ABN employees had falsely certified that two ABN underwriters had reviewed more than 28,000 loans prior to FHA endorsement when they had not, HUD said.

“This settlement is the result of a lot of tireless dedication, hard work and close coordination on behalf of HUD, the department’s inspector general and our other federal partners,” said Keith E. Gottfried, HUD’s general counsel.

The Department’s Office of Inspector General, the Justice Department and the Office of the Comptroller of the Currency were also involved in the probe.

“This action demonstrates our steadfast and enduring commitment to making sure HUD’s programs are administered in accordance with the letter and intent of the law and are free from fraud and abuse,” Gottfried said in a statement.

Brian Montgomery, HUD’s assistant secretary for housing-federal housing commissioner, said, “As much as we intend to aggressively expand the FHA program to help even more families realize their American Dream and become homeowners, we will not do so at the expense of the financial soundness, integrity or reputation of the Federal Housing Administration.”

Montgomery said the settlement showed that the department would take action if participating lenders failed to follow underwriting requirements.

HUD’s Inspector General Kenneth Donahue Sr. said, “This team effort reimburses FHA and the government for, and protects it from, tens of millions of dollars in mortgage insurance losses that were caused by lax procedures during the heyday of the housing boom.”

Under the FHA mortgage insurance program, ABN has direct endorsement authority to approve FHA-insured loans, allowing the company to underwrite loans and submit them to FHA for insurance endorsement, HUD said.

In general, FHA requires that before a lender may submit a loan for endorsement, its underwriters must perform due diligence and make certain certifications, including that the loan meets FHA’s underwriting requirements.

HUD’s Office of General Counsel and HUD’s Office of Inspector General determined that there were potential violations of the False Claims Act and the Program Fraud Civil Remedies Act involving more than 28,000 loans submitted to HUD with false certifications, HUD said.

Loans were submitted with certifications purporting to be signed by one of two underwriters when neither had, in fact, actually signed the certifications nor personally reviewed the loans to determine whether they qualified for FHA insurance, according to HUD.

In addition to the $16.85 million in cash payments to the government, ABN AMRO agreed that it will not submit insurance claims on 783 defaulted loans, saving the FHA insurance fund an estimated $24.35 million in potential losses, HUD said.

HUD reported that as part of the settlement, ABN has also:

  • Taken disciplinary action against the executives, managers and other employees responsible for the improper conduct leading to HUD’s enforcement action, including the termination of several senior-level employees and the reassignment of others;

  • Replaced the entire management structure of the ABN Government Loan Originations Group;

  • Reorganized the entire ABN Mortgage Group;

  • Placed senior executives in positions of direct authority over, and accountability for, the FHA loan program within ABN;

  • Hired a new senior executive to supervise the government loan underwriters; and, Implemented training programs for both the ABN Government Loan Originations Group and the underwriting department on the importance of HUD certifications for FHA-insured loans.

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Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.

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