MetLife Home Loans Mortgage Fraud: When Serious Loan Defects Became Moderate

The MetLife mortgage fraud case ended with MetLife Home Loans LLC agreeing to pay $123.5 million to resolve False Claims Act allegations that MetLife Bank knowingly originated and underwrote ineligible loans for Federal Housing Administration insurance. The company admitted that its own quality-control findings exposed serious defects, that senior management received those findings, and that the bank downgraded loans into a less serious category. If you worked in mortgage quality control, the difference between the original finding and the version sent upstairs may be a familiar part of this story.

The Justice Department announced the settlement on February 25, 2015. This page follows MetLife’s underwriting after the First Horizon acquisition and the admissions behind its settlement, separate from First Tennessee’s earlier loan pool. Our broader account of FHA quality-control concealment follows how findings move from a review to management and then to the Department of Housing and Urban Development.

What Did MetLife Bank Know About Its FHA Loans?

MetLife Bank knew that a substantial percentage of the loans it certified were ineligible for FHA insurance because its own quality-control process had identified the problems. In the admissions described by the Justice Department, MetLife acknowledged repeatedly certifying loans that failed HUD underwriting requirements from September 2008 through March 2012.

Between January 2009 and August 2010, its internal quality-control findings put the portion of loans with the most serious deficiencies at 25% to more than 60%. The bank called that category “material/significant.” The findings routinely went to senior managers, including the chief executive officer and the board of directors.

The bank’s identified significant-error rate fell in 2010 and 2011. During that same period, it more frequently downgraded FHA loans from significant to moderate. The Justice Department’s account of the admissions quotes a quality-control employee discussing the downgrades in an email:

We see a serious loan finding turned into good news by changing its label. In the employee’s email, even the enthusiasm was capitalized.

Between January 2009 and December 2011, MetLife Bank identified 1,097 FHA mortgages it had underwritten with a significant finding, but self-reported only 321 mortgages despite its obligation to report material violations. For an insider, the useful connection is the particular loan, its finding and the decision about reporting it.

Why FHA Relied on MetLife’s Underwriting

MetLife Bank participated as a Direct Endorsement lender, with authority to originate, underwrite and certify mortgages for Federal Housing Administration insurance. As the Justice Department explained in the MetLife announcement, the agency did not review a loan’s underwriting before endorsement. It relied on the lender to follow the program’s rules and submit eligible loans.

That arrangement puts the lender’s decision between the loan application and government insurance. Our page on FHA mortgage fraud follows the information used to approve the loan, the certification for insurance and any later claim. When an insured loan defaults, its holder may seek payment from FHA for the resulting losses.

We connect the underlying file to the decision the lender adopted, then to what quality control learned afterward. A reviewer who knew why the loan failed the requirements may explain far more than the final category on a report.

MetLife’s admissions carried the story through to government money. The Justice Department said the bank’s conduct caused FHA to insure hundreds of ineligible loans and suffer substantial losses when it later paid insurance claims.

The Department of Housing and Urban Development, its Office of Inspector General, the Justice Department’s Civil Division and the U.S. Attorney’s Office for the District of Colorado jointly investigated the case. For someone inside underwriting or compliance, a dated warning puts the company’s knowledge beside the decision that followed.

A Federal Housing Administration insurance payment can also bring a loan or property onto the government’s books, followed by collections on that asset. We trace insurance payments and later recoveries for the loans at issue to understand the money behind a certification.

First Horizon’s Sale and the Separate FHA Loan Pools

First Tennessee’s resolution concerned its own FHA lending through First Horizon Home Loans Corporation, while MetLife’s concerned originations after the acquisition. The Justice Department’s First Tennessee announcement identifies First Tennessee’s participation through that subsidiary from January 2006 through October 2008. It also dates the sale of First Horizon to MetLife Bank to August 2008, after which FHA mortgages were originated under the MetLife name.

The First Tennessee period extended beyond the transaction month, while the MetLife certification period began the following month. We place a particular loan with the entity that underwrote and certified it, using its own dates and records.

In June 2013, MetLife Bank merged into MetLife Home Loans LLC, the company that agreed to the settlement. The announcement identifies both the bank and its successor as wholly owned subsidiaries of MetLife Inc. For an employee following the loans after a corporate change, who held the claim evidence helps connect the underwriting decision to the later insurance claim.

First Tennessee separately agreed to pay $212.5 million in a resolution announced on June 1, 2015. It admitted that its own quality-control findings exposed ineligible loans, that those findings routinely reached senior managers, and that it failed to report even a single deficient mortgage to FHA despite internally acknowledging hundreds with material deficiencies. The comparison is specific: both accounts describe serious internal findings that did not produce the required reporting to HUD.

What an Insider Can Recognize in a Changed Finding

An insider may recognize the same loan in an underwriting file, an original quality-control review and a later report carrying a different severity label. The evidence connecting those versions can show what the reviewer found, who received the finding and how the company described it afterward. We examine the original problem and the stated reason for changing its category together.

The management copy and the self-reporting record answer different questions. One shows what decision-makers were told; the other shows what the lender disclosed to HUD. In MetLife’s admitted account, findings reached senior management while the bank’s reporting fell short. A person who prepared, reviewed or distributed those records may know where the accounts diverged.

The certification and insurance claim complete that connection to government money. We work with you to connect the underwriting decision, the internal warning and the later request for payment, including which company handled each step. Your knowledge of a changed finding can give meaning to documents that otherwise look like routine review paperwork.

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 that share, and our whistleblower experts can assess how your knowledge of the review strengthens a case.

You Know Why the Finding Changed

If you saw a serious FHA loan finding downgraded or left off a report to HUD, tell our whistleblower experts what happened inside the review. We work beside you to build the case around that knowledge and bring in mortgage fraud whistleblower lawyers who understand underwriting, quality control and federal insurance claims. From the first conversation through the pursuit of a recovery, you have experts in your corner who understand why the original finding matters.