HUD OIG Announces Termination of FHA Fraud Investigation

On September 29, the Office of Inspector General for the United States Department of Housing and Urban Development (HUD OIG) announced the termination of an investigation of a national mortgage lender relating to a purported mortgage fraud scheme.  The U.S. Attorney’s Office for the District of New Jersey assisted in the investigation, which began as a qui tam filing in the United States District Court for the District of New Jersey.  The lawsuit alleged that a Direct Endorsement (DE) lender, which was acquired by the national lender, knowingly participated in a mortgage fraud scheme involving the origination and underwriting of FHA loans for manufactured homes.

HUD OIG determined that the DE lender did not in fact participate in such a scheme, and found the realtor’s claims to be unsubstantiated.  However, the investigation concluded that the realtor’s loan on her manufactured home did not qualify for FHA insurance because the home was built prior to June 15, 1976 — i.e., before manufactured housing construction safety standards took effect.  Because the loan was ineligible for insurance, HUD OIG recommended that HUD take “appropriate action to prevent an insurance claim,” and placed a permanent block on the payment of the $55,405 claim on the realtor’s loan.