Branch Banking & Trust Mortgage Fraud Case: More Loans, the Same Review Staff

Branch Banking & Trust Company agreed to pay $83 million to resolve its mortgage fraud case over ineligible Federal Housing Administration loans and failures in underwriting and quality control. BB&T admitted that it capped loan reviews because its quality-control department lacked adequate staff, while internal reports alerted management to serious underwriting defects. If you worked in underwriting or quality control, the decisions about which loans got reviewed and which findings reached the Department of Housing and Urban Development are the heart of this case.

The Justice Department announced the civil False Claims Act settlement on September 29, 2016. This case follows BB&T’s review limits, management warnings and delayed reporting. Our broader account of mortgage fraud whistleblower evidence follows the records connecting a lender’s decisions to a government claim.

What Did BB&T Admit About FHA Quality Control?

BB&T admitted that, between January 1, 2006 and September 30, 2014, it certified mortgage loans for FHA insurance that failed HUD’s underwriting requirements and did not follow FHA’s quality-control requirements. The Justice Department’s account follows those failures through to insurance claims that cost HUD money.

BB&T participated as a Direct Endorsement lender, with authority to originate, underwrite and endorse mortgages for FHA insurance. In that program, FHA relied on the lender to verify compliance with credit and eligibility standards before endorsement, rather than reviewing each loan itself beforehand. When an insured loan later defaulted, its holder could submit an insurance claim to HUD for losses.

That is the connection between an underwriting file and government mortgage backing. The lender decided whether the loan qualified, and its certification brought the loan into the insurance program. Quality control gave the lender another opportunity to identify problems with decisions it had already made.

The bank’s most significant internal defect rating was Serious-Marketability, which meant a loan was ineligible for FHA insurance. For an insider, the rating connects the reviewer who identified the defect with the bank’s later treatment of the same loan.

In the quality-control findings described by the Justice Department, the share rated Serious-Marketability exceeded 30 percent each year from 2007 through 2011 and exceeded 50 percent in 2010 and 2011. According to the admitted facts, BB&T nevertheless endorsed many loans carrying that rating and sought payment from HUD if they defaulted.

Loan Growth Outran Quality Control

BB&T’s loan production grew while its review staff stayed the same. Between 2006 and 2009, the bank more than doubled its total loan originations and increased its FHA-insured loans sixfold. That growth coincided with an increase in loans its quality control department rated Serious-Marketability. The number of quality-control employees did not increase with that volume.

The quality control department requested additional employees in 2009, but new employees were not added until 2013. Without adequate staff, the department capped the number of loans it reviewed. As a result, from 2009 through 2014 it did not always review enough loans to meet HUD’s sampling requirements.

A reviewer could identify a problem with a loan already selected, while the cap limited how many other loans received that scrutiny. We see the absurdity in BB&T’s admissions: the loan business expanded, and the control assigned to check it got a ceiling.

The bank also admitted that it failed to perform required reviews of its lender branch offices before resuming them in late 2014. Those branch reviews and the loan sample were different checks within the same FHA quality-control process. Someone who knew how review assignments were made could see where the work had stopped before any final report reached HUD.

Management Had the Findings

BB&T’s monthly quality control reviews and reports alerted management to deficiencies in many of its FHA loans. The Justice Department’s account quotes an internal memorandum from 2010 that identified both the pressure from increased volume and employees’ failure to apply the right guidelines:

The proposed response was concrete: additional FHA training and a testing and certification process for underwriters. BB&T prepared that proposal in 2010, but neither recommendation was implemented until after 2014. Management had the findings and a proposed response. The proposal waited.

The review, its delivery to management and the response each leave a different part of the story. An underwriter may know which guideline was ignored, while a quality control employee may know when the bank recognized the pattern and whether the promised correction reached the people approving loans.

Why Did BB&T’s Reports to HUD Matter?

BB&T’s reports to HUD mattered because internal findings had identified loans as ineligible for the insurance the bank had obtained. The bank admitted that HUD had required self-reporting since at least 2006, yet BB&T did not report any loans containing material underwriting defects until 2013. Monthly reports were reaching management while defective loans remained unreported to the agency carrying the insurance risk.

That sequence gives an insider more than a list of bad loans. The original underwriting file shows the information used to approve a loan, the quality control file shows what the bank later found, and the management report shows where that finding went. The external report then shows what HUD was told and when.

These records answer different questions, so their dates matter. A final review that looks complete can still leave the earlier discovery, management response and reporting decision unexplained. We work with the person who knows those stages to connect them to the certification and claim for the same loan.

How Does This Case Differ From Regions Bank?

BB&T’s case centered on review caps, staffing limits and delayed reporting, while Regions Bank’s settlement account described a different way of weakening quality control findings. Regions admitted that it sometimes cured findings with documents that had not been available to the original underwriter. That practice understated the defect rate reported to management.

The distinction matters to someone who has seen a loan file change after closing. At Regions, the later documents could make the original underwriting decision look better in a subsequent review. At BB&T, the admitted staffing shortage constrained the reviews themselves, and findings the bank did make were not promptly reported to HUD.

From BB&T’s Certifications to HUD’s Losses

The Justice Department said BB&T’s conduct led HUD to insure loans that were ineligible and that the agency would otherwise not have insured. HUD then incurred substantial losses when it paid insurance claims on those loans. The review and reporting failures therefore reached government money through particular loans, their insurance eligibility and the later claims.

The settlement followed a joint investigation by HUD, the HUD Office of Inspector General, the Justice Department and the U.S. Attorney’s Office for the Northern District of Georgia. It resolved the alleged False Claims Act liability over the FHA lending conduct. BB&T’s factual admissions supply the unusually direct account of what the bank knew about its own controls.

For a person inside a mortgage business, that connection gives the quality control history its weight. The certification identifies what the lender represented, the claim identifies what it asked HUD to pay, and the payment record shows what the government paid. Our account of mortgage insurance payments and government loss follows the money beyond the initial claim.

The Quality Control Decisions an Insider Can Explain

An insider may know why a loan was left out of a review, why a finding changed or who received a report before it went further. BB&T’s admissions make those ordinary working details central to the case: the request for staff, the cap on reviews, the management reports and the proposal that remained unimplemented.

We connect that knowledge to the original underwriting file, the loans selected for review, the defect classifications, management’s response and the actual report to HUD. A dated version of each record can show the difference between the loan as approved and the loan as later explained. The claim and payment records complete the connection to government money.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Our mortgage whistleblower rewards page explains the recovery behind the share, and our experts work with you on the case your knowledge can support.

You Know What Happened to the Findings

If you saw FHA review limits, unreported defects or management warnings left unanswered, speak with our whistleblower experts about the decisions behind those records. We build your strongest mortgage fraud whistleblower case with you and bring in mortgage fraud whistleblower lawyers who know underwriting, quality control and FHA insurance claims. You bring the view from inside the process; we bring the expertise and partnership to pursue what it reveals.