Capmark Finance Mortgage Fraud Case: The Nursing-Home Loans HUD Had to Cover

In the Capmark mortgage fraud case, Capmark Finance agreed to pay $3.9 million over allegations that false statements about borrower creditworthiness induced the Department of Housing and Urban Development to insure two nursing-home mortgages. For someone who worked on the financing, the important comparison is between the credit information inside the lender’s file and the account sent to the federal insurer.

This case follows the financing of care facilities and the insurance payments after their loans defaulted. Our FHA mortgage fraud page follows the broader underwriting and insurance-claim process. Capmark’s case centers on what the lender told HUD about the borrowers buying the facilities.

Two Nursing Homes and the Creditworthiness Behind Their Loans

The Justice Department alleged that Capmark made false statements in applications for mortgage insurance covering the acquisition of Canoga Care Center in Canoga Park, California, and Hudson Valley Care Center in Ghent, New York. Its announcement of the lawsuit described a federal program supporting loans used to acquire healthcare facilities, including hospitals and nursing homes.

The care centers were the properties being financed, and the federal payments at issue covered mortgage defaults. That puts the evidence in the lending and insurance files, apart from the facilities’ patient-care billing. The allegation concerned the information used to obtain insurance before the defaults, when the lender was asking the housing department to accept the risk.

The Justice Department’s settlement announcement identifies borrower creditworthiness as the reason the alleged false statements mattered. Creditworthiness was the link between the application and the public money: the Justice Department alleged that the false account of the borrowers caused the housing department to insure loans that later defaulted.

For an underwriting or credit-review employee, that is a concrete comparison. We look at the information available when the application was prepared, the representation the lender adopted, and what reached the insurer. A revised credit assessment, an exception record or the final submitted application can show different stages of that decision, which is why the dates and recipients matter alongside the figures.

The allegations arose from investigation and audit work by the Department of Housing and Urban Development’s Office of Inspector General. The Justice Department’s Civil Division handled the case with assistance from the Program Enforcement Branch in HUD’s Office of General Counsel.

What HUD Paid and What Capmark Agreed to Pay

The Department of Housing and Urban Development paid $25,895,701 after accepting the insurance applications and after both facilities defaulted on their loans, according to the Justice Department’s filing announcement. Capmark later agreed to the $3.9 million settlement. We see the blunt contrast in the Justice Department’s account: the alleged misrepresentations got the loans insured, and the federal insurer got the bill.

A mortgage-insurance payment starts a separate accounting question about what the government ultimately loses or recovers. Depending on the transaction, a paid claim can leave the government holding a loan or property, with later collections affecting the final loss.

The Complaint, the Bankruptcy and the Settlement

The Justice Department announced its suit against Capmark Finance Inc. on June 9, 2009. Its later announcement says Capmark sought bankruptcy protection shortly after the United States filed the complaint. On February 10, 2012, the department announced the settlement with Capmark Finance LLC of Horsham, Pennsylvania.

False Credit Information and False Certifications

The separate Deutsche Bank and MortgageIT case also concerned what a lender told the federal insurer about loans it wanted insured. The United States alleged false Federal Housing Administration certifications, deficient underwriting and quality-control failures, as described in the settlement announcement and accompanying agreement. Capmark’s case focused on borrower creditworthiness in the applications for the care-facility loans.

For an insider, the shared point is the gap between the lending work and the representation sent to the insurer. An underwriter may know the information used to approve a loan, while a quality-control employee may know what a review found afterward. We examine both against what the lender represented, with the timing of each decision kept clear. That is how an internal credit concern can become evidence about the decision to put public money at risk.

The Lending File and the Insurance Payment Belong Together

The useful mortgage whistleblower evidence connects the borrower’s financial information to the lender’s representation and the government money that followed. In Capmark’s case, the Justice Department alleged that connection through the insurance applications and the defaults. For an insider with knowledge of similar lending, the application’s source information and the decisions made with it are where we start.

The records may sit with different participants in the mortgage business. Origination, underwriting, servicing, document custody and payment processing can involve different people or entities. An employee who knows how the application was prepared may never have handled the later insurance claim. Someone who worked on the claim may know the payment history without having seen the original credit review. We work with the part of the transaction you know and establish how it connects to the insurer’s decision and payment.

The distinction between the lender’s retained documents and its submitted certification also matters. A final submission tells us what the lender represented, while the supporting file can show what information went into it and what changed along the way. If you saw a credit assessment revised, the earlier version and the final application may tell different parts of the story. An exception record can show how a concern was handled before the lender adopted its final account of the borrower. We examine those records together, including who had the information when the application went forward.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We partner with mortgage insiders from the first conversation, develop the evidence with them, and bring in mortgage fraud whistleblower lawyers who understand the particular lending and insurance arrangements.

You Know What the Credit File Said

If you saw borrower information change on its way to a HUD insurance application, talk with our whistleblower experts about the lending decisions you know. We develop your case with you, find mortgage fraud whistleblower lawyers who know HUD-insured lending, and stay alongside you through the pursuit of a recovery.