The federal government slapped Troy, Michigan-based Flagstar Bank for unfair business practices in their mortgage lending operations. Recently, the two sides reached a settlement amounting to $133 million.
The U.S. attorney for the Southern District of New York and the Department of Housing and Urban Develop (HUD) said that the company wanted to ensure successful profit of their company first, instead of ensuring that home owners were outfitted with proper mortgages that they would not be forced to default on later.
Both parties accused Flagstar Bank of approving mortgages that did not comply with HUD and Federal Housing Administration requirements as well as putting unqualified staff members in charge of approving HUD-backed mortgages.
Under the terms of the settlement, Flagstar will pay $15 million within 30 days and continue with the remaining $118 million when it is in a financial position to do so. For the next year, the bank will be monitored by a third party to make sure they comply with HUD and FHA regulations.
The bank will also provide all staff that originates and underwrites FHA-insured mortgages with a new training program to ensure employees properly adhere to guidelines.
Flagstar was not the only bank to be targeted by the United States government, which has recently cracked down on what it considers to be fraudulent practices by mortgage lenders. The office has sued a number of other financial institutions as well.
The CEO of Flagstar said that now that the litigation is behind him and his company, the bank can now focus on delivering quality customer service. He said his company leads the pack in originating and servicing FHA-insured loans and that it will continue to.
Flagstar Bank is one of the largest residential mortgage lenders in the United States.
Source: Detroit Free Press, "Flagstar mortgage fraud lawsuit settled for $133 million," Katherine Yung, Feb. 25, 2012
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