California Mortgage Lender Agrees to Pay More Than $1 Million to Resolve Fraud Allegations

Spokane, Washington – Vanessa R. Waldref, the United States Attorney for the Eastern District of Washington, announced today that American Financial Network, Inc., a mortgage lender based in Brea, California, has agreed to pay $1,037,145 to resolve allegations that it improperly and fraudulently originated government-backed mortgage loans insured by the Federal Housing  Administration (FHA), a component of the U.S. Department of Housing and Urban Development (HUD).

“FHA-backed mortgages are a critical resource for first-time homebuyers, moderate-income borrowers, and families who have suffered negative credit due to the pandemic or other events out of their control,” said U.S. Attorney Waldref. “By improperly originating ineligible mortgages, lenders take advantage of the limited resources of the FHA program and unfairly pass the risk of loss onto the public.”

Since at least December 2011, AFN has been a participant in FHA’s Direct Endorsement Program. Through this program, a lender such as AFN is authorized to originate and approve mortgage loans to be insured by FHA without any prior review or approval by FHA. Lenders such as AFN are responsible for carefully underwriting the mortgage to make sure that it meets all FHA requirements. Once a mortgage loan is insured by FHA, if the borrower defaults or is unable to repay the mortgage, the lender that holds the mortgage note can submit a claim for insurance benefits to FHA to cover its losses.

The settlement resolves allegations that between December 2011 and March 2019, AFN knowingly underwrote certain FHA mortgages and approved for insurance certain mortgages that did not meet FHA requirements or qualify for insurance, resulting in losses to the United States when the borrowers defaulted on those mortgages. The settlement further resolves allegations that AFN knowingly failed to perform quality control reviews that it was required to perform.

This case began in March 2019 when a whistleblower, a former loan processor with AFN, filed a qui tam complaint under seal in federal court in Spokane. When a whistleblower, or “relator,” files a qui tam complaint, the False Claims Act requires the United States to investigate the allegations and elect whether to intervene and take over the action or to decline to intervene and allow the relator to go forward with the litigation on behalf of the United States. The relator is generally able to then share in any recovery. Pursuant to the settlement agreement, the relator in this case will receive $228,172 of the settlement, and will also recover her attorney’s fees, expenses, and costs.

“Quality and affordable housing is a critical issue in Eastern Washington and across the nation,” said U.S. Attorney Waldref. “Protecting the resources that support families who dream of purchasing their first home makes our community stronger. I commend the exceptional investigative work by Veterans Affairs Office of Inspector General and HUD’s Office of Inspector General that holds accountable those who abuse housing programs.”

“HUD’s Office of Inspector General is committed to working with the Department of Justice and our law enforcement partners to ensure that federal programs designed to help our nation’s most vulnerable are not abused,” said Special Agent-in-Charge Scott Tanchak. “Today’s settlement demonstrates the Government’s commitment to protecting the integrity of HUD programs.”

“Investigations such as these help safeguard the integrity of the home loan approval process and protect vulnerable veterans from fraudulent lending practices,” said Special Agent in Charge Jason Root of the Department of Veterans Affairs Office of Inspector General’s Northwest Field Office. “The VA OIG thanks the U.S. Attorney’s Office for the Eastern District of Washington and HUD’s Office of Inspector General for their partnership in this joint investigation.”

The settlement was the result of a joint investigation conducted by the U.S. Attorney’s Office for the Eastern District of Washington, HUD’s Office of Inspector General, and the U.S. Department of Veterans Affairs, Office of Inspector General, Spokane Resident Office.

Assistant United States Attorneys Tyler H.L. Tornabene and Dan Fruchter and Special Assistant United States Attorney Frieda K. Zimmerman handled this matter on behalf of the United States. The claims resolved by the settlement are allegations only and there has been no determination of liability.