First Tennessee Mortgage Fraud Case: Hundreds of Defects Found, None Reported

First Tennessee Bank N.A. agreed to pay $212.5 million in the First Tennessee mortgage fraud case over allegations that it knowingly originated and underwrote ineligible loans for Federal Housing Administration insurance. The bank admitted that its own quality-control findings reached senior managers while deficient mortgages went unreported to the agency. If you worked in underwriting or loan review, the difference between what management knew and what the lender told FHA is the heart of this case.

This page follows First Tennessee’s FHA lending through its subsidiary First Horizon Home Loans Corporation and keeps that loan period separate from MetLife’s later FHA settlement. The business changed hands, but the earlier underwriting and certification decisions still had a government insurance bill attached to them.

First Horizon’s Sale and the Earlier FHA Loan Pool

First Tennessee participated in the Federal Housing Administration program through First Horizon from January 2006 through October 2008, according to the Justice Department’s settlement announcement. First Tennessee sold First Horizon to MetLife Bank in August 2008.

MetLife subsequently originated FHA mortgages under its own name. Its separate case concerned loans during September 2008 through March 2012, and MetLife Home Loans, the successor to MetLife Bank, agreed to pay $123.5 million.

For someone who worked through the sale, the company name on a certification matters as much as the date on the business transaction. We follow the loan from the underwriting decision to the certification and then to the insurance claim, identifying which company acted at each point. A mortgage can pass through different hands while the earlier representations remain part of its history.

Quality-Control Findings Reached Senior Management

First Tennessee admitted that its quality-control reviews exposed a substantial percentage of FHA loans that were ineligible for insurance, and that senior managers routinely received those findings. The Justice Department’s account puts that knowledge no later than early 2008. The bank had significantly increased FHA originations beginning in late 2007, and the quality of its FHA underwriting deteriorated as lending increased during the following year.

First Tennessee also admitted repeatedly certifying mortgages for federal insurance even though they did not meet the housing department’s underwriting requirements. The bank’s reviews identified material deficiencies, and the reporting obligation required it to tell FHA about them. The announcement’s account of First Tennessee’s admissions states:

We would call that a one-way reporting line. The warnings made it upstairs. They stopped there.

If you prepared those reviews, received the findings or dealt with the reporting decisions, your knowledge can connect the defective loan to the people who knew about it. In a case about quality-control findings kept from FHA, we look at what the reviewer identified, who received it, what authority they had and what happened to the finding afterward. The internal account and the account given to the insurer belong beside each other.

FHA Certification Put the Bank’s Judgment Behind the Insurance

First Tennessee’s authority as a Direct Endorsement lender let it originate, underwrite and endorse mortgages for federal insurance. As the Justice Department explained the program in this case, neither FHA nor its parent agency, the Department of Housing and Urban Development, reviewed a loan before endorsement. The lender made the eligibility decision that put FHA’s insurance behind the mortgage.

The lender had to follow underwriting and certification requirements, maintain a quality-control program capable of preventing and correcting deficiencies, and report deficient loans identified through that program. The agency depended on those controls because the initial loan review took place inside the lender.

The insurance claim came later. If an insured loan defaulted, its holder could submit a claim to the housing department for the resulting losses. First Tennessee admitted that its conduct caused the Federal Housing Administration to insure hundreds of ineligible loans and suffer substantial losses when FHA paid claims on them.

Someone who knows why a loan failed review may be able to explain what the certification overlooked, while a claims employee may know the later request for payment. We examine the loan file, certification and claim evidence together, including the original information, the reviewer, any exception authority, the management recipients and the reason for the loss.

A Later Claim Can Sit With Another Company

The originating lender, the company holding the mortgage and the servicer can be different businesses. If you handled claims after the First Horizon sale, your files may connect the earlier certification to the later request for government money. We would compare the company on the certification with the holder and submitter on the claim, then follow who held the claim evidence through the work and agreements behind it.

The MetLife case shows why the later period deserves its own account. According to the Justice Department’s MetLife announcement, the company admitted certifying ineligible loans, knowing about serious defects, downgrading some findings and failing to report them. First Tennessee’s admissions concerned its own earlier certifications and reporting failures. The shared business history makes the comparison useful, while the separate admissions identify whose decisions each case addressed.

FHA Whistleblower Rewards

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For an underwriting or quality-control insider, we focus on the connection that made this case consequential: what the lender knew about eligibility, what it certified and what FHA later paid.

Your Review May Explain the Certification

If you saw FHA loans approved after internal reviews found serious defects, tell our whistleblower experts what happened to those findings. We work with you to build your strongest FHA whistleblower case around the underwriting decisions, management knowledge and insurance payments, and bring in mortgage fraud whistleblower lawyers who know FHA lending. We stay beside you as your account of the files becomes a case for recovering government money.